UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED
September 30, 2004
Commission File Number
0-2525
Huntington Bancshares Incorporated
|
|
|
Maryland
|
|
31-0724920
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification No.)
|
41 South High Street, Columbus, Ohio 43287
Registrants telephone number
(614) 480-8300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
There were 231,105,691 shares of Registrants without par value common stock
outstanding on October 31, 2004.
Huntington Bancshares Incorporated
INDEX
|
|
|
|
|
Part I. Financial Information
|
|
|
|
|
Item 1. Financial Statements
(Unaudited)
|
|
|
|
|
Condensed Consolidated Balance
Sheets at September 30, 2004, December 31, 2003, and September 30,
2003
|
|
|
3
|
|
Condensed Consolidated Statements
of Income for the three and nine months ended September 30,
2004 and 2003
|
|
|
4
|
|
Condensed Consolidated Statements
of Changes in Shareholders Equity for the nine months ended
September 30, 2004 and 2003
|
|
|
5
|
|
Condensed Consolidated Statements
of Cash Flows for the nine months ended September 30, 2004
and 2003
|
|
|
6
|
|
Notes to Unaudited Condensed
Consolidated Financial Statements
|
|
|
7
|
|
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
19
|
|
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
|
|
|
77
|
|
Item 4. Controls and Procedures
|
|
|
77
|
|
Part II. Other Information
|
|
|
|
|
Item 2. Changes in Securities,
Use of Proceeds, and Issuer Purchases of Equity Securities
|
|
|
78
|
|
Item 6. Exhibits and Reports
on Form 8-K
|
|
|
78
|
|
Signatures
|
|
|
80
|
|
Exhibit 10(A) |
Exhibit 10(B) |
Exhibit 31.1 |
Exhibit 31.2 |
Exhibit 32.1 |
Exhibit 32.2 |
2
Part 1. Financial Information
Item 1. Financial Statements
Huntington Bancshares
Incorporated
Condensed Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
(in thousands, except number of shares)
|
|
2004
|
|
2003
|
|
2003
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,053,358
|
|
|
$
|
899,689
|
|
|
$
|
775,423
|
|
Federal funds sold and securities
purchased under resale agreements
|
|
|
838,833
|
|
|
|
96,814
|
|
|
|
87,196
|
|
Interest bearing deposits in banks
|
|
|
36,155
|
|
|
|
33,627
|
|
|
|
37,857
|
|
Trading account securities
|
|
|
120,334
|
|
|
|
7,589
|
|
|
|
415
|
|
Loans held for sale
|
|
|
205,913
|
|
|
|
226,729
|
|
|
|
411,792
|
|
Investment securities
|
|
|
4,150,044
|
|
|
|
4,929,060
|
|
|
|
4,283,475
|
|
Loans and leases
|
|
|
22,587,259
|
|
|
|
21,075,118
|
|
|
|
21,172,747
|
|
Allowance for loan and lease losses
|
|
|
(282,650
|
)
|
|
|
(299,732
|
)
|
|
|
(336,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
22,304,609
|
|
|
|
20,775,386
|
|
|
|
20,836,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
717,411
|
|
|
|
1,260,440
|
|
|
|
1,454,590
|
|
Bank owned life insurance
|
|
|
954,911
|
|
|
|
927,671
|
|
|
|
917,261
|
|
Premises and equipment
|
|
|
356,438
|
|
|
|
349,712
|
|
|
|
338,863
|
|
Goodwill and other intangible assets
|
|
|
216,011
|
|
|
|
217,009
|
|
|
|
217,212
|
|
Customers acceptance liability
|
|
|
8,787
|
|
|
|
9,553
|
|
|
|
9,208
|
|
Accrued income and other assets
|
|
|
844,689
|
|
|
|
786,047
|
|
|
|
759,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
31,807,493
|
|
|
$
|
30,519,326
|
|
|
$
|
30,128,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
20,109,025
|
|
|
$
|
18,487,395
|
|
|
$
|
18,833,856
|
|
Short-term borrowings
|
|
|
1,215,887
|
|
|
|
1,452,304
|
|
|
|
1,400,047
|
|
Federal Home Loan Bank advances
|
|
|
1,270,454
|
|
|
|
1,273,000
|
|
|
|
1,273,000
|
|
Other long-term debt
|
|
|
4,094,185
|
|
|
|
4,544,509
|
|
|
|
4,269,288
|
|
Subordinated notes
|
|
|
1,040,901
|
|
|
|
990,470
|
|
|
|
791,045
|
|
Allowance for unfunded loan commitments and
letters of credit
|
|
|
30,007
|
|
|
|
35,522
|
|
|
|
33,737
|
|
Bank acceptances outstanding
|
|
|
8,787
|
|
|
|
9,553
|
|
|
|
9,208
|
|
Accrued expenses and other liabilities
|
|
|
1,577,330
|
|
|
|
1,451,571
|
|
|
|
1,277,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
29,346,576
|
|
|
|
28,244,324
|
|
|
|
27,887,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock authorized 6,617,808 shares;
none outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock without par value; authorized
500,000,000 shares; issued 257,866,255
shares; outstanding 230,153,486; 229,008,088
and 228,869,936 shares, respectively
|
|
|
2,482,904
|
|
|
|
2,483,542
|
|
|
|
2,482,370
|
|
Less 27,712,769; 28,858,167 and 28,996,319
treasury shares, respectively
|
|
|
(526,967
|
)
|
|
|
(548,576
|
)
|
|
|
(550,766
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(13,812
|
)
|
|
|
2,678
|
|
|
|
25,865
|
|
Retained earnings
|
|
|
518,792
|
|
|
|
337,358
|
|
|
|
283,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
2,460,917
|
|
|
|
2,275,002
|
|
|
|
2,241,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
31,807,493
|
|
|
$
|
30,519,326
|
|
|
$
|
30,128,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial statements
3
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands, except per share amounts)
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Interest and fee income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
284,790
|
|
|
$
|
277,906
|
|
|
$
|
823,562
|
|
|
$
|
813,845
|
|
Tax-exempt
|
|
|
474
|
|
|
|
588
|
|
|
|
1,423
|
|
|
|
1,997
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
38,987
|
|
|
|
36,311
|
|
|
|
127,059
|
|
|
|
110,450
|
|
Tax-exempt
|
|
|
7,032
|
|
|
|
6,199
|
|
|
|
21,792
|
|
|
|
16,171
|
|
Other
|
|
|
6,719
|
|
|
|
12,316
|
|
|
|
14,264
|
|
|
|
28,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
|
338,002
|
|
|
|
333,320
|
|
|
|
988,100
|
|
|
|
970,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
64,812
|
|
|
|
67,565
|
|
|
|
183,810
|
|
|
|
223,658
|
|
Short-term borrowings
|
|
|
3,121
|
|
|
|
2,992
|
|
|
|
9,222
|
|
|
|
12,864
|
|
Federal Home Loan Bank advances
|
|
|
8,426
|
|
|
|
5,883
|
|
|
|
24,565
|
|
|
|
17,102
|
|
Subordinated notes and other long-term debt
including preferred capital securities
|
|
|
34,585
|
|
|
|
36,409
|
|
|
|
98,197
|
|
|
|
92,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
110,944
|
|
|
|
112,849
|
|
|
|
315,794
|
|
|
|
345,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
227,058
|
|
|
|
220,471
|
|
|
|
672,306
|
|
|
|
624,671
|
|
Provision for credit losses
|
|
|
11,785
|
|
|
|
51,615
|
|
|
|
42,408
|
|
|
|
137,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After
Provision for Credit Losses
|
|
|
215,273
|
|
|
|
168,856
|
|
|
|
629,898
|
|
|
|
487,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
|
|
64,412
|
|
|
|
117,624
|
|
|
|
231,985
|
|
|
|
384,391
|
|
Service charges on deposit accounts
|
|
|
43,935
|
|
|
|
42,294
|
|
|
|
129,368
|
|
|
|
123,077
|
|
Trust services
|
|
|
17,064
|
|
|
|
15,365
|
|
|
|
50,095
|
|
|
|
45,856
|
|
Brokerage and insurance income
|
|
|
13,200
|
|
|
|
13,807
|
|
|
|
41,920
|
|
|
|
43,500
|
|
Mortgage banking
|
|
|
4,448
|
|
|
|
30,193
|
|
|
|
23,474
|
|
|
|
48,503
|
|
Bank owned life insurance income
|
|
|
10,019
|
|
|
|
10,438
|
|
|
|
31,813
|
|
|
|
32,618
|
|
Other service charges and fees
|
|
|
10,799
|
|
|
|
10,499
|
|
|
|
30,957
|
|
|
|
32,209
|
|
Gain on sales of automobile loans
|
|
|
312
|
|
|
|
|
|
|
|
14,206
|
|
|
|
23,751
|
|
Gain on sale of branch offices
|
|
|
|
|
|
|
13,112
|
|
|
|
|
|
|
|
13,112
|
|
Securities gains (losses)
|
|
|
7,803
|
|
|
|
(4,107
|
)
|
|
|
13,663
|
|
|
|
3,978
|
|
Other
|
|
|
17,899
|
|
|
|
23,543
|
|
|
|
68,177
|
|
|
|
71,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
189,891
|
|
|
|
272,768
|
|
|
|
635,658
|
|
|
|
822,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
121,729
|
|
|
|
113,170
|
|
|
|
363,068
|
|
|
|
331,501
|
|
Operating lease expense
|
|
|
54,885
|
|
|
|
93,134
|
|
|
|
188,158
|
|
|
|
307,661
|
|
Outside data processing and other services
|
|
|
17,527
|
|
|
|
17,478
|
|
|
|
53,552
|
|
|
|
50,161
|
|
Equipment
|
|
|
15,295
|
|
|
|
16,328
|
|
|
|
47,609
|
|
|
|
49,081
|
|
Net occupancy
|
|
|
16,838
|
|
|
|
15,570
|
|
|
|
49,859
|
|
|
|
47,556
|
|
Professional services
|
|
|
12,219
|
|
|
|
11,116
|
|
|
|
27,354
|
|
|
|
30,273
|
|
Marketing
|
|
|
5,000
|
|
|
|
5,515
|
|
|
|
20,908
|
|
|
|
20,595
|
|
Telecommunications
|
|
|
5,359
|
|
|
|
5,612
|
|
|
|
15,191
|
|
|
|
16,707
|
|
Printing and supplies
|
|
|
3,201
|
|
|
|
3,658
|
|
|
|
9,315
|
|
|
|
9,592
|
|
Amortization of intangibles
|
|
|
204
|
|
|
|
204
|
|
|
|
612
|
|
|
|
612
|
|
Restructuring reserve releases
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
(1,151
|
)
|
|
|
(6,315
|
)
|
Other
|
|
|
22,317
|
|
|
|
18,397
|
|
|
|
66,755
|
|
|
|
55,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
|
273,423
|
|
|
|
300,182
|
|
|
|
841,230
|
|
|
|
912,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
131,741
|
|
|
|
141,442
|
|
|
|
424,326
|
|
|
|
396,968
|
|
Provision for income taxes
|
|
|
38,255
|
|
|
|
37,230
|
|
|
|
116,540
|
|
|
|
104,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle
|
|
|
93,486
|
|
|
|
104,212
|
|
|
|
307,786
|
|
|
|
292,432
|
|
Cumulative effect of change in accounting
principle, net of tax
|
|
|
|
|
|
|
(13,330
|
)
|
|
|
|
|
|
|
(13,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
93,486
|
|
|
$
|
90,882
|
|
|
$
|
307,786
|
|
|
$
|
279,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares diluted
|
|
|
234,348
|
|
|
|
230,966
|
|
|
|
233,307
|
|
|
|
231,353
|
|
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle Diluted
|
|
$
|
0.40
|
|
|
$
|
0.45
|
|
|
$
|
1.32
|
|
|
$
|
1.26
|
|
Net Income Diluted
|
|
|
0.40
|
|
|
|
0.39
|
|
|
|
1.32
|
|
|
|
1.21
|
|
Cash Dividends Declared
|
|
|
0.200
|
|
|
|
0.175
|
|
|
|
0.550
|
|
|
|
0.495
|
|
See notes to unaudited condensed consolidated financial statements
4
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Changes in Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Shares
|
|
Other
Comprehensive
|
|
Retained
|
|
|
(in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Income
|
|
Earnings
|
|
Total
|
Nine Months Ended September 30, 2003
(Unaudited)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
257,866
|
|
|
$
|
2,484,421
|
|
|
|
(24,987
|
)
|
|
$
|
(475,399
|
)
|
|
$
|
62,300
|
|
|
$
|
118,471
|
|
|
$
|
2,189,793
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279,102
|
|
|
|
279,102
|
|
Unrealized net holding losses on securities
available for sale arising during the period,
net of reclassification adjustment for net
gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,233
|
)
|
|
|
|
|
|
|
(26,233
|
)
|
Unrealized losses on derivative instruments
used in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,202
|
)
|
|
|
|
|
|
|
(10,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.495 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,586
|
)
|
|
|
(113,586
|
)
|
Stock options exercised
|
|
|
|
|
|
|
(2,144
|
)
|
|
|
337
|
|
|
|
6,373
|
|
|
|
|
|
|
|
|
|
|
|
4,229
|
|
Treasury shares purchased
|
|
|
|
|
|
|
|
|
|
|
(4,300
|
)
|
|
|
(81,061
|
)
|
|
|
|
|
|
|
|
|
|
|
(81,061
|
)
|
Other
|
|
|
|
|
|
|
93
|
|
|
|
(46
|
)
|
|
|
(679
|
)
|
|
|
|
|
|
|
|
|
|
|
(586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period (
Unaudited
)
|
|
|
257,866
|
|
|
$
|
2,482,370
|
|
|
|
(28,996
|
)
|
|
$
|
(550,766
|
)
|
|
$
|
25,865
|
|
|
$
|
283,987
|
|
|
$
|
2,241,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2004
(Unaudited)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
257,866
|
|
|
$
|
2,483,542
|
|
|
|
(28,858
|
)
|
|
$
|
(548,576
|
)
|
|
$
|
2,678
|
|
|
$
|
337,358
|
|
|
$
|
2,275,002
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,786
|
|
|
|
307,786
|
|
Unrealized net holding losses on securities
available for sale arising during the period,
net of reclassification adjustment for net
gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,555
|
)
|
|
|
|
|
|
|
(19,555
|
)
|
Unrealized gains on derivative instruments
used in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,065
|
|
|
|
|
|
|
|
3,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.550 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,352
|
)
|
|
|
(126,352
|
)
|
Stock options exercised
|
|
|
|
|
|
|
(564
|
)
|
|
|
985
|
|
|
|
18,865
|
|
|
|
|
|
|
|
|
|
|
|
18,301
|
|
Other
|
|
|
|
|
|
|
(74
|
)
|
|
|
160
|
|
|
|
2,744
|
|
|
|
|
|
|
|
|
|
|
|
2,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period (
Unaudited
)
|
|
|
257,866
|
|
|
$
|
2,482,904
|
|
|
|
(27,713
|
)
|
|
$
|
(526,967
|
)
|
|
$
|
(13,812
|
)
|
|
$
|
518,792
|
|
|
$
|
2,460,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
5
Huntington Bancshares Incorporated
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2003
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
307,786
|
|
|
$
|
279,102
|
|
Adjustments to reconcile net income to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
|
|
|
|
13,330
|
|
Provision for credit losses
|
|
|
42,408
|
|
|
|
137,652
|
|
Depreciation on operating lease assets
|
|
|
187,022
|
|
|
|
290,474
|
|
Other depreciation and amortization
|
|
|
65,279
|
|
|
|
73,855
|
|
Deferred income tax expense
|
|
|
83,140
|
|
|
|
78,754
|
|
Increase in trading account securities
|
|
|
(112,745
|
)
|
|
|
(174
|
)
|
Decrease in loans held for sale
|
|
|
20,566
|
|
|
|
116,587
|
|
Gains on sales of investment securities
|
|
|
(13,663
|
)
|
|
|
(3,978
|
)
|
Gains on sale of automobile loans
|
|
|
(14,206
|
)
|
|
|
(23,751
|
)
|
Gains on sale of branch offices
|
|
|
|
|
|
|
(13,112
|
)
|
Restructuring reserve releases
|
|
|
(1,151
|
)
|
|
|
(6,315
|
)
|
Other, net
|
|
|
(40,099
|
)
|
|
|
(155,245
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
524,337
|
|
|
|
787,179
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Increase in interest bearing deposits in banks
|
|
|
(2,528
|
)
|
|
|
(557
|
)
|
Proceeds from:
|
|
|
|
|
|
|
|
|
Maturities and calls of investment securities
|
|
|
746,386
|
|
|
|
1,343,838
|
|
Sales of investment securities
|
|
|
1,655,459
|
|
|
|
887,936
|
|
Purchases of investment securities
|
|
|
(1,530,657
|
)
|
|
|
(3,140,336
|
)
|
Proceeds from sales/securitizations of loans
|
|
|
1,534,395
|
|
|
|
1,475,948
|
|
Net loan and lease originations, excluding sales
|
|
|
(3,216,666
|
)
|
|
|
(3,457,605
|
)
|
Net decrease in operating lease assets
|
|
|
357,184
|
|
|
|
473,727
|
|
Sale of branch offices
|
|
|
|
|
|
|
(81,367
|
)
|
Proceeds from sale of premises and equipment
|
|
|
340
|
|
|
|
6,825
|
|
Purchases of premises and equipment
|
|
|
(43,924
|
)
|
|
|
(44,076
|
)
|
Proceeds from sales of other real estate
|
|
|
9,800
|
|
|
|
6,997
|
|
Consolidation of cash of securitization trust
|
|
|
|
|
|
|
58,500
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used for Investing Activities
|
|
|
(490,211
|
)
|
|
|
(2,470,170
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Increase in total deposits
|
|
|
1,610,167
|
|
|
|
1,525,808
|
|
Decrease in short-term borrowings
|
|
|
(236,417
|
)
|
|
|
(740,969
|
)
|
Proceeds from issuance of subordinated notes
|
|
|
148,830
|
|
|
|
|
|
Maturity of subordinated notes
|
|
|
(100,000
|
)
|
|
|
(250,000
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
454
|
|
|
|
270,000
|
|
Maturity of Federal Home Loan Bank advances
|
|
|
(3,000
|
)
|
|
|
(10,000
|
)
|
Proceeds from long-term debt
|
|
|
675,000
|
|
|
|
1,450,000
|
|
Maturity of long-term debt
|
|
|
(1,130,000
|
)
|
|
|
(530,000
|
)
|
Dividends paid on common stock
|
|
|
(121,773
|
)
|
|
|
(111,007
|
)
|
Repurchases of common stock
|
|
|
|
|
|
|
(81,061
|
)
|
Net proceeds from issuance of common stock
|
|
|
18,301
|
|
|
|
4,076
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
861,562
|
|
|
|
1,526,847
|
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents
|
|
|
895,688
|
|
|
|
(156,144
|
)
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
996,503
|
|
|
|
1,018,763
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
1,892,191
|
|
|
$
|
862,619
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
14,031
|
|
|
$
|
70,953
|
|
Interest paid
|
|
|
302,801
|
|
|
|
354,071
|
|
Non-cash activities
|
|
|
|
|
|
|
|
|
Residential mortgage loans securitized and retained in securities
available for sale
|
|
|
115,929
|
|
|
|
171,586
|
|
Common stock dividends accrued not paid
|
|
|
36,254
|
|
|
|
30,901
|
|
See notes to unaudited condensed consolidated financial statements.
6
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Huntington Bancshares Incorporated (Huntington) reflect all adjustments
consisting of normal recurring accruals, which are, in the opinion of
Management, necessary for a fair presentation of the consolidated financial
position, the results of operations, and cash flows for the periods presented.
These unaudited condensed consolidated financial statements have been prepared
according to the rules and regulations of the Securities and Exchange
Commission (SEC) and, therefore, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States (GAAP) have been
omitted. The Notes to the Consolidated Financial Statements appearing in
Huntingtons 2003 Annual Report on Form 10-K (2003 Form 10-K), which include
descriptions of significant accounting policies, as updated by the information
contained in this report, should be read in conjunction with these interim
financial statements.
Certain amounts in the prior years financial statements have been
reclassified to conform to the 2004 presentation.
For statement of cash flows purposes, cash and cash equivalents are
defined as the sum of Cash and due from banks and Federal funds sold and
securities purchased under resale agreements. The statement of cash flows for
the nine-months ended September 30, 2003, has been corrected to properly
reflect the sale of branch offices during the third quarter of 2003.
Note 2 New Accounting Pronouncements
Emerging Issues Task Force Issue No. 03-1,
The Meaning of Other-Than-Temporary
Impairments and Its Application to Certain Investments
(EITF 03-1):
The
Emerging Issues Task Force reached a consensus about the criteria that should
be used to determine when an investment is considered impaired, whether that
impairment is other than temporary, and the measurement of an impairment loss.
EITF 03-1 also included accounting considerations subsequent to the recognition
of an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. On September 30, 2004, the FASB issued FSP 03-1-1 which delayed
the effective date for the measurement and recognition guidance contained in
paragraphs 1020 of Issue 03-1 due to additional proposed guidance expected to be finalized in the fourth quarter of 2004.
At September 30, 2004, Huntington had $2.5 billion of debt securities with
current market values less than their amortized cost. These debt securities had
an aggregate unrealized loss of $32.7 million at September 30, 2004. None of
these securities were equity securities or debt securities that can
contractually be prepaid or otherwise settled in such a way that Huntington
would not recover substantially all of its cost. At September 30, 2004, a
total of $26.8 million of these debt securities had market values that were 5%
or more below their amortized cost. The aggregate unrealized loss for these
securities was $1.5 million. The declines in value are the result of interest
rate fluctuations and Huntington believes the declines are temporary;
therefore, no impairment loss has been recorded except as described in the
paragraph below. Until the final FSP 03-1-1 is finalized, Huntington cannot
determine the impact that the proposed guidance might have on the financial
statements.
At September 30, 2004, Management made a decision, to sell $11 million of
equity securities, with unrealized losses of $0.9 million. Consequently,
Huntington recognized the unrealized losses in the third quarter of 2004.
Emerging Issues Task Force Issue No. 03-16,
Accounting for Investment in
Limited Liability Companies
(EITF 03-16):
The Task Force reached a consensus
that an investment in a limited liability company (LLC) that maintains a
specific ownership account for each investor should be viewed as similar to
an investment in a limited partnership for purposes of determining whether a
noncontrolling investment in a LLC should be accounted for using the cost
method or the equity method. The current rules require a noncontrolling
investment in a limited partnership to be accounted for under the equity method
unless the interest is so minor that the limited partner may have virtually no
influence over the partnership operating and financial policies. The guidance
for evaluating an investment in a LLC should be applied for reporting periods
beginning after June 15, 2004. The impact of EITF 03-16 was not material to
Huntingtons financial condition, results of operations, or cash flows.
SEC Staff Accounting Bulletin No. 105,
Application of Accounting Principles to
Loan Commitments
(SAB 105):
On March 9, 2004, the SEC issued SAB 105, which
summarizes the views of the SEC staff regarding the application of
7
generally accepted accounting principles to loan commitments accounted for as
derivative instruments. Specifically, SAB 105 indicated that the fair value of
loan commitments that are required to follow derivative accounting under FAS
133,
Accounting for Derivative Instruments and Hedging Activities
, should not
consider the expected future cash flows related to the associated servicing of
the future loan. Prior to SAB 105, Huntington did not consider the expected
future cash flows related to the associated servicing in determining the fair
value of loan commitments. The adoption of SAB 105 did not have a material
effect on Huntingtons financial results.
FASB Staff Position No. 106-2,
Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(FSP 106-2):
In December 2003, a law was approved that expands Medicare
benefits, primarily adding a prescription drug benefit for Medicare-eligible
retirees beginning in 2006. The law also provides a federal subsidy to
companies that sponsor postretirement benefit plans providing prescription drug
coverage. FSP 106-2 was issued in May 2004 and supersedes FSP 106-1 issued in
January 2004. FSP 106-2 specifies that any Medicare subsidy must be taken into
account in measuring the employers postretirement health care benefit
obligation and will also reduce the net periodic postretirement cost in future
periods. The new guidance is effective for the reporting periods beginning on
or after June 15, 2004. The impact of this new pronouncement was not material
to Huntingtons financial condition, results of operations, or cash flows.
AICPA Statement of Position No. 03-3,
Accounting for Certain Loans or Debt
Securities Acquired in a Transfer
(SOP 03-3):
In December 2003, the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants issued SOP 03-3 to address accounting for differences between the
contractual cash flows of certain loans and debt securities and the cash flows
expected to be collected when loans or debt securities are acquired in a
transfer and those cash flow differences are attributable, at least in part, to
credit quality. As such, SOP 03-3 applies to loans and debt securities
purchased or acquired in purchase business combinations and does not apply to
originated loans. The application of SOP 03-3 limits the interest income,
including accretion of purchase price discounts, that may be recognized for
certain loans and debt securities. Additionally, SOP 03-3 requires that the
excess of contractual cash flows over cash flows expected to be collected
(nonaccretable difference) not be recognized as an adjustment of yield or
valuation allowance, such as the allowance for credit losses. Subsequent to the
initial investment, increases in expected cash flows generally should be
recognized prospectively through adjustment of the yield on the loan or debt
security over its remaining life. Decreases in expected cash flows should be
recognized as impairment. SOP 03-3 is effective for loans and debt securities
acquired in fiscal years beginning after December 15, 2004, with early
application encouraged. The impact of this new pronouncement is not expected to
be material to Huntingtons financial condition, results of operations, or cash
flows.
Note 3 Securities and Exchange Commission Investigation
As previously disclosed, Huntington continues to have ongoing discussions
with the staff of the Securities and Exchange Commission (SEC) regarding
resolution of its formal investigation into certain financial accounting
matters relating to fiscal years 2002 and earlier and certain related
disclosure matters. It is anticipated that a settlement of this matter will
involve the entry of an order by the SEC requiring Huntington to comply with
various provisions of the Securities Exchange Act of 1934 and the Securities
Act of 1933, along with the imposition of a civil money penalty. No assurances, however, can be provided
as to the ultimate timing or outcome of this matter pending a final
settlement.
Note 4 Formal Supervisory Agreements and Impact on Pending Acquisition
On November 3, 2004, Huntington announced that it expects to enter into
formal supervisory agreements with its banking regulators, the Federal Reserve
and the Office of the Controller of the Currency, providing for a comprehensive
action plan designed to address its financial reporting and accounting
policies, procedures, and controls and its corporate governance practices.
Huntington remains in active dialogue with banking regulators concerning these
and related matters and is working diligently to resolve this in a full and
comprehensive manner.
On January 27, 2004, Huntington announced the signing of a definitive
agreement to acquire Unizan Financial Corp. (Unizan), a financial holding
company based in Canton, Ohio, with $2.7 billion of assets at December 31,
2003. Under the terms of the agreement, Unizan shareholders would receive 1.1424
shares of Huntington common stock, on a tax-free basis, for each share of
Unizan.
8
As part of its November 3, 2004, announcement, Huntington indicated that
it is negotiating a one-year extension of its merger agreement with Unizan.
Huntington intends to withdraw its current application with the Federal Reserve
to acquire Unizan and to resubmit the application for regulatory approval of
the merger once it has successfully resolved the aforementioned regulatory
concerns.
Huntington believes that it will be able to address all of the issues that have been raised by its banking regulators and the SEC (see Note 3) concerning these matters in a comprehensive
manner and is working aggressively to do so. No assurances, however, can be provided as to the ultimate timing or
outcome of these matters.
Note 5 Stock Repurchase Plan
Effective April 27, 2004, the board of directors authorized a new share
repurchase program (the 2004 Repurchase Program) which cancelled the 2003
Repurchase Program and authorized Management to repurchase not more than
7,500,000 shares of Huntington common stock. Purchases will be made from
time-to-time in the open market or through privately negotiated transactions
depending on market conditions. As of September 30, 2004, there have been no
share repurchases made under the 2004 Repurchase Program.
Note 6 Operating Lease Assets
Operating lease assets at September 30, 2004, December 31, 2003, and
September 30, 2003, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2003
|
|
2003
|
Cost of assets under operating leases
|
|
$
|
1,368,787
|
|
|
$
|
2,136,502
|
|
|
$
|
2,416,907
|
|
Deferred lease origination fees and costs
|
|
|
(939
|
)
|
|
|
(2,117
|
)
|
|
|
(40,220
|
)
|
Accumulated depreciation
|
|
|
(650,437
|
)
|
|
|
(873,945
|
)
|
|
|
(922,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Assets, Net
|
|
$
|
717,411
|
|
|
$
|
1,260,440
|
|
|
$
|
1,454,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation related to operating lease assets was $54.6 million and $86.5
million for the three months ended September 30, 2004 and 2003, respectively.
For the respective nine-month periods, depreciation was $187.0 million and
$290.5 million.
9
Note 7 Investment Securities
Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10
years and over 10 years) of investment securities at September 30, 2004,
December 31, 2003, and September 30, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
December 31, 2003
|
|
September 30, 2003
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
(in thousands of dollars)
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
U.S. Treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,374
|
|
|
$
|
1,376
|
|
|
$
|
325
|
|
|
$
|
329
|
|
1-5 years
|
|
|
24,230
|
|
|
|
24,551
|
|
|
|
31,356
|
|
|
|
31,454
|
|
|
|
32,855
|
|
|
|
33,611
|
|
6-10 years
|
|
|
754
|
|
|
|
842
|
|
|
|
271,271
|
|
|
|
275,540
|
|
|
|
270,529
|
|
|
|
281,343
|
|
Over 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Treasury
|
|
|
24,984
|
|
|
|
25,393
|
|
|
|
304,001
|
|
|
|
308,370
|
|
|
|
303,709
|
|
|
|
315,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-5 years
|
|
|
2,773
|
|
|
|
2,831
|
|
|
|
19,899
|
|
|
|
20,434
|
|
|
|
21,289
|
|
|
|
21,931
|
|
6-10 years
|
|
|
100,827
|
|
|
|
101,157
|
|
|
|
198,755
|
|
|
|
201,995
|
|
|
|
235,180
|
|
|
|
239,766
|
|
Over 10 years
|
|
|
939,050
|
|
|
|
929,892
|
|
|
|
1,593,139
|
|
|
|
1,595,594
|
|
|
|
1,594,938
|
|
|
|
1,607,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage-Backed
|
|
|
1,042,650
|
|
|
|
1,033,880
|
|
|
|
1,811,793
|
|
|
|
1,818,023
|
|
|
|
1,851,407
|
|
|
|
1,869,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
499
|
|
|
|
510
|
|
|
|
173,181
|
|
|
|
175,505
|
|
|
|
193,091
|
|
|
|
197,357
|
|
1-5 years
|
|
|
564,302
|
|
|
|
562,705
|
|
|
|
585,561
|
|
|
|
593,662
|
|
|
|
389,418
|
|
|
|
403,841
|
|
6-10 years
|
|
|
317,312
|
|
|
|
307,070
|
|
|
|
403,953
|
|
|
|
390,164
|
|
|
|
404,776
|
|
|
|
398,626
|
|
Over 10 years
|
|
|
|
|
|
|
|
|
|
|
201
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Agencies
|
|
|
882,113
|
|
|
|
870,285
|
|
|
|
1,162,896
|
|
|
|
1,159,523
|
|
|
|
987,285
|
|
|
|
999,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S Treasury and Federal Agencies
|
|
|
1,949,747
|
|
|
|
1,929,558
|
|
|
|
3,278,690
|
|
|
|
3,285,916
|
|
|
|
3,142,401
|
|
|
|
3,184,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
7,180
|
|
|
|
7,199
|
|
|
|
7,989
|
|
|
|
8,058
|
|
|
|
8,345
|
|
|
|
8,414
|
|
1-5 years
|
|
|
9,396
|
|
|
|
9,596
|
|
|
|
21,706
|
|
|
|
22,260
|
|
|
|
27,056
|
|
|
|
27,804
|
|
6-10 years
|
|
|
86,677
|
|
|
|
87,788
|
|
|
|
70,253
|
|
|
|
71,755
|
|
|
|
46,521
|
|
|
|
47,408
|
|
Over 10 years
|
|
|
293,322
|
|
|
|
297,519
|
|
|
|
332,181
|
|
|
|
334,188
|
|
|
|
316,469
|
|
|
|
316,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Municipal Securities
|
|
|
396,575
|
|
|
|
402,102
|
|
|
|
432,129
|
|
|
|
436,261
|
|
|
|
398,391
|
|
|
|
400,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Label CMO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
|
|
|
|
|
|
|
|
1,973
|
|
|
|
1,973
|
|
|
|
|
|
|
|
|
|
1-5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6-10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 10 years
|
|
|
564,084
|
|
|
|
560,563
|
|
|
|
388,933
|
|
|
|
388,684
|
|
|
|
192,869
|
|
|
|
193,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private Label CMO
|
|
|
564,084
|
|
|
|
560,563
|
|
|
|
390,906
|
|
|
|
390,657
|
|
|
|
192,869
|
|
|
|
193,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-5 years
|
|
|
30,000
|
|
|
|
29,944
|
|
|
|
30,000
|
|
|
|
29,944
|
|
|
|
30,000
|
|
|
|
29,944
|
|
6-10 years
|
|
|
9,725
|
|
|
|
9,838
|
|
|
|
20,000
|
|
|
|
19,984
|
|
|
|
20,000
|
|
|
|
19,839
|
|
Over 10 years
|
|
|
1,051,982
|
|
|
|
1,053,020
|
|
|
|
590,826
|
|
|
|
589,788
|
|
|
|
278,498
|
|
|
|
277,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asset Backed Securities
|
|
|
1,091,707
|
|
|
|
1,092,802
|
|
|
|
640,826
|
|
|
|
639,716
|
|
|
|
328,498
|
|
|
|
327,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 year
|
|
|
1,601
|
|
|
|
1,612
|
|
|
|
500
|
|
|
|
502
|
|
|
|
1,490
|
|
|
|
1,497
|
|
1-5 years
|
|
|
9,612
|
|
|
|
9,968
|
|
|
|
7,169
|
|
|
|
7,346
|
|
|
|
9,327
|
|
|
|
9,772
|
|
6-10 years
|
|
|
2,253
|
|
|
|
2,351
|
|
|
|
5,047
|
|
|
|
5,510
|
|
|
|
4,045
|
|
|
|
4,422
|
|
Over 10 years
|
|
|
144,201
|
|
|
|
144,707
|
|
|
|
145,103
|
|
|
|
146,685
|
|
|
|
141,901
|
|
|
|
143,436
|
|
Retained interest in securitizations
|
|
|
|
|
|
|
|
|
|
|
5,593
|
|
|
|
6,356
|
|
|
|
5,671
|
|
|
|
5,960
|
|
Marketable equity securities
|
|
|
5,965
|
|
|
|
6,381
|
|
|
|
8,547
|
|
|
|
10,111
|
|
|
|
11,529
|
|
|
|
12,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
|
|
|
163,632
|
|
|
|
165,019
|
|
|
|
171,959
|
|
|
|
176,510
|
|
|
|
173,963
|
|
|
|
177,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities
|
|
$
|
4,165,745
|
|
|
$
|
4,150,044
|
|
|
$
|
4,914,510
|
|
|
$
|
4,929,060
|
|
|
$
|
4,236,122
|
|
|
$
|
4,283,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
The growth in the Asset Backed Securities from year-end and the year-ago
quarter primarily consisted of over 10-year variable-rate securities.
Note 8 Segment Reporting
Huntington has three distinct lines of business: Regional Banking, Dealer
Sales, and the Private Financial Group (PFG). A fourth segment includes the
companys Treasury functions and capital markets activities and other
unallocated assets, liabilities, revenue, and expense. Lines of business
results are determined based upon the companys management reporting system,
which assigns balance sheet and income statement items to each of the business
segments. The process is designed around Huntingtons organizational and
management structure and, accordingly, the results below are not necessarily
comparable with similar information published by other financial institutions.
A description of each segment and discussion of financial results is provided
below.
Regional Banking:
This segment provides products and services to retail,
business banking, and commercial customers. These products and services are
offered in seven operating regions within the five states of Ohio, Michigan,
West Virginia, Indiana, and Kentucky through the companys traditional banking
network. Each region is further divided into Retail and Commercial Banking
units. Retail products and services include home equity loans and lines of
credit, first mortgage loans, direct installment loans, business loans,
personal and business deposit products, as well as sales of investment and
insurance services. Retail products and services comprise 59% and 80% of total
Regional Banking loans and deposits, respectively. These products and services
are delivered to customers through banking offices, ATMs, Direct
BankHuntingtons customer service center, and Web Bank at huntington.com.
Commercial banking serves middle-market and commercial banking relationships,
which use a variety of banking products and services including commercial
loans, international trade, cash management, leasing, interest rate protection
products, capital market alternatives, 401(k) plans, and mezzanine investment
capabilities.
Dealer Sales:
This segment serves over 3,500 automotive dealerships within
Huntingtons primary banking markets as well as in Arizona, Florida, Georgia,
Pennsylvania, and Tennessee. The segment finances the purchase of automobiles
by consumers of the automotive dealerships, purchases automobiles from dealers
and simultaneously leases the automobiles under long-term direct financing
leases to consumers, finances dealership floor plan inventories, real estate,
or working capital needs, and provides other banking services to the automotive
dealerships and their owners.
Private Financial Group:
This segment provides products and services designed
to meet the needs of the companys higher net worth customers. Revenue is
derived through trust, asset management, investment advisory, brokerage,
insurance, and private banking products and services.
Treasury/Other:
This segment includes revenue and expense related to assets,
liabilities, and equity that are not directly assigned or allocated to one of
the other three business segments. Assets included in this segment include
investment securities, bank owned life insurance, and mezzanine loans
originated through Huntington Capital Markets. A match-funded transfer pricing
system is used to attribute appropriate interest income and interest expense to
other business segments. This segment includes the net impact of interest rate
risk management, including derivative activities. Furthermore, this segments
results include the earnings from the companys investment securities
portfolios and capital markets activities. Additionally, income or expense and
provision for income taxes, not allocated to other business segments, are also
included.
Use of Operating Earnings to Measure Segment Performance
Management uses earnings on an operating basis, rather than on a GAAP
basis, to measure underlying performance trends for each business segment.
Analyzing earnings on an operating basis is very helpful in assessing
underlying performance trends, a critical factor used by Management to
determine the success of strategies and future earnings capabilities.
Operating earnings represent GAAP earnings adjusted to exclude the impact of
the significant items listed in the reconciliation table below. See Note 12 for
further discussions regarding Restructuring Reserves.
11
Listed below is certain reported financial information reconciled to
Huntingtons three and nine month 2004 and 2003 operating results by line of
business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
Income Statements
|
|
Regional
|
|
Dealer
|
|
|
|
|
|
Treasury/
|
|
Huntington
|
(in thousands)
|
|
Banking
|
|
Sales
|
|
PFG
|
|
Other
|
|
Consolidated
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
163,147
|
|
|
$
|
37,376
|
|
|
$
|
11,715
|
|
|
$
|
14,820
|
|
|
$
|
227,058
|
|
Provision for credit losses
|
|
|
(5,086
|
)
|
|
|
(6,100
|
)
|
|
|
(72
|
)
|
|
|
(527
|
)
|
|
|
(11,785
|
)
|
Non-Interest income
|
|
|
77,256
|
|
|
|
73,145
|
|
|
|
27,588
|
|
|
|
11,902
|
|
|
|
189,891
|
|
Non-Interest expense
|
|
|
(144,423
|
)
|
|
|
(77,149
|
)
|
|
|
(27,083
|
)
|
|
|
(24,768
|
)
|
|
|
(273,423
|
)
|
Provision for income taxes
|
|
|
(31,813
|
)
|
|
|
(9,545
|
)
|
|
|
(4,252
|
)
|
|
|
7,355
|
|
|
|
(38,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
|
59,081
|
|
|
|
17,727
|
|
|
|
7,896
|
|
|
|
8,782
|
|
|
|
93,486
|
|
Gain on sale of automobile loans, net of tax
|
|
|
|
|
|
|
(384
|
)
|
|
|
|
|
|
|
181
|
|
|
|
(203
|
)
|
Restructuring releases, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(748
|
)
|
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
$
|
59,081
|
|
|
$
|
17,343
|
|
|
$
|
7,896
|
|
|
$
|
8,215
|
|
|
$
|
92,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
160,973
|
|
|
$
|
29,236
|
|
|
$
|
11,085
|
|
|
$
|
19,177
|
|
|
$
|
220,471
|
|
Provision for credit losses
|
|
|
(32,537
|
)
|
|
|
(16,036
|
)
|
|
|
(2,415
|
)
|
|
|
(627
|
)
|
|
|
(51,615
|
)
|
Non-Interest income
|
|
|
97,772
|
|
|
|
125,536
|
|
|
|
25,815
|
|
|
|
23,645
|
|
|
|
272,768
|
|
Non-Interest expense
|
|
|
(141,422
|
)
|
|
|
(115,006
|
)
|
|
|
(26,092
|
)
|
|
|
(17,662
|
)
|
|
|
(300,182
|
)
|
Provision for income taxes
|
|
|
(29,675
|
)
|
|
|
(8,306
|
)
|
|
|
(2,938
|
)
|
|
|
3,689
|
|
|
|
(37,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle
|
|
|
55,111
|
|
|
|
15,424
|
|
|
|
5,455
|
|
|
|
28,222
|
|
|
|
104,212
|
|
Cumulative effect of change in accounting
principle, net of tax
|
|
|
|
|
|
|
(10,888
|
)
|
|
|
|
|
|
|
(2,442
|
)
|
|
|
(13,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
|
55,111
|
|
|
|
4,536
|
|
|
|
5,455
|
|
|
|
25,780
|
|
|
|
90,882
|
|
Cumulative effect of change in accounting
principle, net of tax
|
|
|
|
|
|
|
10,888
|
|
|
|
|
|
|
|
2,442
|
|
|
|
13,330
|
|
Gain on sale of branch offices, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,523
|
)
|
|
|
(8,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
$
|
55,111
|
|
|
$
|
15,424
|
|
|
$
|
5,455
|
|
|
$
|
19,699
|
|
|
$
|
95,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
Income Statements
|
|
Regional
|
|
Dealer
|
|
|
|
|
|
Treasury/
|
|
Huntington
|
(in thousands)
|
|
Banking
|
|
Sales
|
|
PFG
|
|
Other
|
|
Consolidated
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
469,292
|
|
|
$
|
111,267
|
|
|
$
|
34,010
|
|
|
$
|
57,737
|
|
|
$
|
672,306
|
|
Provision for credit losses
|
|
|
(3,242
|
)
|
|
|
(36,016
|
)
|
|
|
(169
|
)
|
|
|
(2,981
|
)
|
|
|
(42,408
|
)
|
Non-Interest income
|
|
|
231,782
|
|
|
|
269,683
|
|
|
|
83,895
|
|
|
|
50,298
|
|
|
|
635,658
|
|
Non-Interest expense
|
|
|
(439,515
|
)
|
|
|
(254,286
|
)
|
|
|
(85,103
|
)
|
|
|
(62,326
|
)
|
|
|
(841,230
|
)
|
Provision for income taxes
|
|
|
(90,411
|
)
|
|
|
(31,727
|
)
|
|
|
(11,422
|
)
|
|
|
17,020
|
|
|
|
(116,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
|
167,906
|
|
|
|
58,921
|
|
|
|
21,211
|
|
|
|
59,748
|
|
|
|
307,786
|
|
Gain on sale of automobile loans, net of tax
|
|
|
|
|
|
|
(8,598
|
)
|
|
|
|
|
|
|
(636
|
)
|
|
|
(9,234
|
)
|
Restructuring releases, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(748
|
)
|
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
$
|
167,906
|
|
|
$
|
50,323
|
|
|
$
|
21,211
|
|
|
$
|
58,364
|
|
|
$
|
297,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
457,805
|
|
|
$
|
56,522
|
|
|
$
|
30,365
|
|
|
$
|
79,979
|
|
|
$
|
624,671
|
|
Provision for credit losses
|
|
|
(96,615
|
)
|
|
|
(36,612
|
)
|
|
|
(3,858
|
)
|
|
|
(567
|
)
|
|
|
(137,652
|
)
|
Non-Interest income
|
|
|
241,161
|
|
|
|
437,355
|
|
|
|
80,878
|
|
|
|
63,249
|
|
|
|
822,643
|
|
Non-Interest expense
|
|
|
(425,045
|
)
|
|
|
(374,639
|
)
|
|
|
(78,613
|
)
|
|
|
(34,397
|
)
|
|
|
(912,694
|
)
|
Provision for income taxes
|
|
|
(62,057
|
)
|
|
|
(28,920
|
)
|
|
|
(10,071
|
)
|
|
|
(3,488
|
)
|
|
|
(104,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
|
115,249
|
|
|
|
53,706
|
|
|
|
18,701
|
|
|
|
104,776
|
|
|
|
292,432
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
|
|
|
|
(10,888
|
)
|
|
|
|
|
|
|
(2,442
|
)
|
|
|
(13,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
|
115,249
|
|
|
|
42,818
|
|
|
|
18,701
|
|
|
|
102,334
|
|
|
|
279,102
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
|
|
|
|
10,888
|
|
|
|
|
|
|
|
2,442
|
|
|
|
13,330
|
|
Gain on sale of automobile loans, net of tax
|
|
|
|
|
|
|
(4,807
|
)
|
|
|
|
|
|
|
(10,631
|
)
|
|
|
(15,438
|
)
|
Gain on sale of branch offices, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,523
|
)
|
|
|
(8,523
|
)
|
Restructuring releases, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,105
|
)
|
|
|
(4,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings
|
|
$
|
115,249
|
|
|
$
|
48,899
|
|
|
$
|
18,701
|
|
|
$
|
81,517
|
|
|
$
|
264,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at
|
|
Total Deposits at
|
Period-end Balance Sheet Data
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
(in millions)
|
|
2004
|
|
2003
|
|
2003
|
|
2004
|
|
2003
|
|
2003
|
Regional Banking
|
|
$
|
17,199
|
|
|
$
|
14,971
|
|
|
$
|
14,974
|
|
|
$
|
16,931
|
|
|
$
|
15,539
|
|
|
$
|
15,671
|
|
Dealer Sales
|
|
|
5,957
|
|
|
|
7,335
|
|
|
|
7,859
|
|
|
|
70
|
|
|
|
77
|
|
|
|
66
|
|
PFG
|
|
|
1,558
|
|
|
|
1,461
|
|
|
|
1,421
|
|
|
|
1,125
|
|
|
|
1,164
|
|
|
|
1,118
|
|
Treasury / Other
|
|
|
7,093
|
|
|
|
6,752
|
|
|
|
5,875
|
|
|
|
1,983
|
|
|
|
1,707
|
|
|
|
1,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,807
|
|
|
$
|
30,519
|
|
|
$
|
30,129
|
|
|
$
|
20,109
|
|
|
$
|
18,487
|
|
|
$
|
18,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Note 9 Comprehensive Income
The components of Huntingtons Other Comprehensive Income in the three and
nine months ended September 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Unrealized holding (losses) gains on
securities available for sale arising
during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gains (losses)
|
|
$
|
58,167
|
|
|
$
|
(37,796
|
)
|
|
$
|
(16,588
|
)
|
|
$
|
(35,997
|
)
|
Related tax (expense) benefit
|
|
|
(20,484
|
)
|
|
|
13,284
|
|
|
|
5,914
|
|
|
|
12,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
37,683
|
|
|
|
(24,512
|
)
|
|
|
(10,674
|
)
|
|
|
(23,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for
net gains (losses) included in net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized net gains (losses)
|
|
|
7,803
|
|
|
|
(4,107
|
)
|
|
|
13,663
|
|
|
|
3,978
|
|
Related tax (expense) benefit
|
|
|
(2,731
|
)
|
|
|
1,437
|
|
|
|
(4,782
|
)
|
|
|
(1,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
5,072
|
|
|
|
(2,670
|
)
|
|
|
8,881
|
|
|
|
2,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized holding gains
(losses) on securities available
for sale arising during the period,
net of reclassification adjustment
for net gains included in net
income
|
|
|
32,611
|
|
|
|
(21,842
|
)
|
|
|
(19,555
|
)
|
|
|
(26,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on
derivatives used in cash flow hedging
relationships arising during the
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net (losses) gains
|
|
|
(29,568
|
)
|
|
|
10,600
|
|
|
|
4,715
|
|
|
|
(15,695
|
)
|
Related tax benefit (expense)
|
|
|
10,349
|
|
|
|
(3,710
|
)
|
|
|
(1,650
|
)
|
|
|
5,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
(19,219
|
)
|
|
|
6,890
|
|
|
|
3,065
|
|
|
|
(10,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income (Loss)
|
|
$
|
13,392
|
|
|
$
|
(14,952
|
)
|
|
$
|
(16,490
|
)
|
|
$
|
(36,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity
in Accumulated Other Comprehensive Income for the nine months ended
September 30, 2004 and 2003 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
(losses) on derivative
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
instruments used in
|
|
|
|
|
Minimum pension
|
|
(losses) on securities
|
|
cash flow hedging
|
|
|
(in thousands)
|
|
liability
|
|
available for sale
|
|
relationships
|
|
Total
|
Balance, December 31, 2002
|
|
$
|
(195
|
)
|
|
$
|
56,856
|
|
|
$
|
5,639
|
|
|
$
|
62,300
|
|
Period change
|
|
|
|
|
|
|
(26,233
|
)
|
|
|
(10,202
|
)
|
|
|
(36,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2003
|
|
$
|
(195
|
)
|
|
$
|
30,623
|
|
|
$
|
(4,563
|
)
|
|
$
|
25,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$
|
(1,309
|
)
|
|
$
|
9,429
|
|
|
$
|
(5,442
|
)
|
|
$
|
2,678
|
|
Period change
|
|
|
|
|
|
|
(19,555
|
)
|
|
|
3,065
|
|
|
|
(16,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2004
|
|
$
|
(1,309
|
)
|
|
$
|
(10,126
|
)
|
|
$
|
(2,377
|
)
|
|
$
|
(13,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Note 10 Earnings per Share
Basic earnings per share is the amount of earnings for the period
available to each share of common stock outstanding during the reporting
period. Diluted earnings per share is the amount of earnings available to each
share of common stock outstanding during the reporting period adjusted for the
potential issuance of common shares upon the exercise of stock options. The
calculation of basic and diluted earnings per share for each of the three and
nine months ended September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands, except per share amount)
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Income Before Cumulative Effect of Change in Accounting Principle
|
|
$
|
93,486
|
|
|
$
|
104,212
|
|
|
$
|
307,786
|
|
|
$
|
292,432
|
|
Net Income
|
|
$
|
93,486
|
|
|
$
|
90,882
|
|
|
$
|
307,786
|
|
|
$
|
279,102
|
|
Average common shares outstanding
|
|
|
229,848
|
|
|
|
228,715
|
|
|
|
229,501
|
|
|
|
229,558
|
|
Dilutive effect of common stock equivalents
|
|
|
4,500
|
|
|
|
2,251
|
|
|
|
3,806
|
|
|
|
1,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Average Common Shares Outstanding
|
|
|
234,348
|
|
|
|
230,966
|
|
|
|
233,307
|
|
|
|
231,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
$
|
0.41
|
|
|
$
|
0.46
|
|
|
$
|
1.34
|
|
|
$
|
1.27
|
|
Net Income
|
|
|
0.41
|
|
|
|
0.40
|
|
|
|
1.34
|
|
|
|
1.22
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
|
0.40
|
|
|
|
0.45
|
|
|
|
1.32
|
|
|
|
1.26
|
|
Net Income
|
|
|
0.40
|
|
|
|
0.39
|
|
|
|
1.32
|
|
|
|
1.21
|
|
The average market price of Huntingtons common stock for the period was
used in determining the dilutive effect of outstanding stock options. Common
stock equivalents are computed based on the number of shares subject to stock
options that have an exercise price less than the average market price of
Huntingtons common stock for the period.
Stock options for approximately 2.5 million and 6.4 million shares were
vested and outstanding at September 30, 2004 and 2003, respectively, but were
not included in the computation of diluted earnings per share because the
options exercise price was greater than the average market price of the common
shares for the period and, therefore, the effect would be antidilutive. The
weighted average exercise price for these options was $27.04 per share and
$23.19 per share at the end of the same respective periods.
On July 30, 2004, Huntington entered into an agreement with the former
shareholders of LeaseNet, Inc. to issue in early 2005 up to 86,118 shares of
Huntington common stock previously held in escrow subject to LeaseNet meeting
certain contractual performance criteria. A total of 366,576 common shares,
previously held in escrow, will be returned to Huntington. All shares in
escrow had been accounted for as treasury stock.
On September 4, 2001, options totaling 3.2 million shares of common stock
were granted to, with certain specified exceptions, full- and part-time
employees under the Huntington Bancshares Incorporated Employee Stock Incentive
Plan (the Incentive Plan). Under the terms of the Incentive Plan, these
options were to vest on the earlier of September 4, 2006, or at such time as
the closing price for Huntingtons common stock for five consecutive trading
days reached or exceeded $25.00. Huntingtons common stock closing price
exceeded $25.00 for each of the five consecutive trading days beginning October
1, 2004, and ending October 7, 2004. As a result, options for 2.0 million
shares of common stock granted under the Incentive Plan, net of options for 1.2
million shares cancelled due to employee attrition, became fully vested and
exercisable after the close of trading on October 7, 2004.
Note 11 Stock-Based Compensation
Huntingtons stock-based compensation plans are accounted for based on the
intrinsic value method promulgated by APB Opinion 25,
Accounting for Stock
Issued to Employees
, and related interpretations. Compensation expense for
employee stock options is generally not recognized if the exercise price of the
option equals or exceeds the fair value of the stock on the date of grant.
15
The following pro forma disclosures for net income and earnings per
diluted common share is presented as if Huntington had applied the fair value
method of accounting of Statement No. 123 in measuring compensation costs for
stock options. The fair values of the stock options granted were estimated
using the Black-Scholes option-pricing model. This model assumes that the
estimated fair value of the options is amortized over the options vesting
periods and the compensation costs would be included in personnel expense on
the income statement. The following table also includes the weighted-average
assumptions that were used in the option-pricing model for options granted in
each of the quarters presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Stock Options Outstanding at period end
(in thousands)
|
|
|
21,572
|
|
|
|
20,361
|
|
|
|
21,572
|
|
|
|
20,361
|
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
3.78
|
%
|
|
|
4.49
|
%
|
|
|
3.78
|
%
|
|
|
4.36
|
%
|
Expected dividend yield
|
|
|
3.19
|
|
|
|
3.37
|
|
|
|
3.19
|
|
|
|
3.32
|
|
Expected volatility of Huntingtons common stock
|
|
|
30.9
|
|
|
|
33.8
|
|
|
|
30.9
|
|
|
|
33.8
|
|
Pro Forma Results
(in millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
93.5
|
|
|
$
|
90.9
|
|
|
$
|
307.8
|
|
|
$
|
279.1
|
|
Less pro forma expense, net of tax, related to options granted
|
|
|
3.7
|
|
|
|
3.5
|
|
|
|
10.1
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Income
|
|
$
|
89.8
|
|
|
$
|
87.4
|
|
|
$
|
297.7
|
|
|
$
|
269.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic, as reported
|
|
$
|
0.41
|
|
|
$
|
0.40
|
|
|
$
|
1.34
|
|
|
$
|
1.22
|
|
Basic, pro forma
|
|
|
0.39
|
|
|
|
0.38
|
|
|
|
1.30
|
|
|
|
1.17
|
|
Diluted, as reported
|
|
|
0.40
|
|
|
|
0.39
|
|
|
|
1.32
|
|
|
|
1.21
|
|
Diluted, pro forma
|
|
|
0.38
|
|
|
|
0.38
|
|
|
|
1.28
|
|
|
|
1.17
|
|
Note 12 Restructuring Reserves
On a quarterly basis, Huntington assesses its remaining restructuring
reserves, primarily related to lease obligations, and makes adjustments to
those reserves as necessary. Based on these assessments, Huntington released
$1.2 million in the third quarter of 2004. Huntington had remaining reserves
for restructuring of $5.1 million, $9.7 million, and $8.7 million, as of
September 30, 2004, December 31, 2003, and September 30, 2003, respectively.
Huntington expects that the reserves will be adequate to fund the estimated
future cash outlays.
Note 13 Benefit Plans
Huntington sponsors the Huntington Bancshares Retirement Plan (the Plan),
a non-contributory defined benefit pension plan covering substantially all
employees. The Plan provides benefits based upon length of service and
compensation levels. The funding policy of Huntington is to contribute an
annual amount that is at least equal to the minimum funding requirements but
not more than that deductible under the Internal Revenue Code. Although not
required, Huntington made a discretionary contribution of $44.6 million to the
Plan during the third quarter of 2004. In addition, Huntington has an
unfunded, defined benefit post-retirement plan that provides certain healthcare
and life insurance benefits to retired employees who have attained the age of
55 and have at least 10 years of vesting service under this plan. For any
employee retiring on or after January 1, 1993, post-retirement healthcare
benefits are based upon the employees number of months of service and are
limited to the actual cost of coverage. Life insurance benefits are a
percentage of the employees base salary at the time of retirement, with a
maximum of $50,000 of coverage.
16
The following table shows the components of net periodic benefit expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post Retirement Benefits
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Service cost
|
|
$
|
3,040
|
|
|
$
|
2,454
|
|
|
$
|
326
|
|
|
$
|
280
|
|
Interest cost
|
|
|
4,371
|
|
|
|
4,162
|
|
|
|
802
|
|
|
|
870
|
|
Expected return on plan assets
|
|
|
(5,383
|
)
|
|
|
(6,285
|
)
|
|
|
|
|
|
|
|
|
Amortization of transition asset
|
|
|
|
|
|
|
(63
|
)
|
|
|
276
|
|
|
|
276
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
151
|
|
Settlements
|
|
|
1,000
|
|
|
|
1,089
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
1,984
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Expense
|
|
$
|
5,012
|
|
|
$
|
1,801
|
|
|
$
|
1,550
|
|
|
$
|
1,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Post Retirement Benefits
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Service cost
|
|
$
|
9,118
|
|
|
$
|
7,363
|
|
|
$
|
976
|
|
|
$
|
841
|
|
Interest cost
|
|
|
13,112
|
|
|
|
12,485
|
|
|
|
2,406
|
|
|
|
2,609
|
|
Expected return on plan assets
|
|
|
(16,147
|
)
|
|
|
(18,853
|
)
|
|
|
|
|
|
|
|
|
Amortization of transition asset
|
|
|
|
|
|
|
(189
|
)
|
|
|
828
|
|
|
|
827
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
437
|
|
|
|
454
|
|
Settlements
|
|
|
3,000
|
|
|
|
3,265
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
5,952
|
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Expense
|
|
$
|
15,035
|
|
|
$
|
5,401
|
|
|
$
|
4,647
|
|
|
$
|
4,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington also sponsors other retirement plans. One of those plans is an
unfunded Supplemental Executive Retirement Plan. This plan is a nonqualified
plan that provides certain former officers of Huntington and its subsidiaries
with defined pension benefits in excess of limits imposed by federal tax law.
Other plans, including plans assumed in various past acquisitions, are
unfunded, nonqualified plans that provide certain active and former officers of
Huntington and its subsidiaries nominated by Huntingtons compensation
committee with deferred compensation, post-employment, and/or defined pension
benefits in excess of the qualified plan limits imposed by federal tax law.
Huntington has a 401(k) plan, which is a defined contribution plan that is
available to eligible employees. Matching contributions by Huntington equal
100% on the first 3%, then 50% on the next 2%, of participant elective
deferrals. The cost of providing this plan was $2.3 million and $2.1 million
for the three months ended September 30, 2004 and 2003, respectively. For the
respective nine-month periods, the cost was $7.0 million and $6.5 million.
17
Note 14 Commitments and Contingent Liabilities
Commitments
:
In the ordinary course of business, Huntington makes various commitments
to extend credit that are not reflected in the financial statements. The
contract amount of these financial agreements at September 30, 2004, December
31, 2003, and September 30, 2003, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
(in millions)
|
|
2004
|
|
2003
|
|
2003
|
Contract amount represents credit risk
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5,094
|
|
|
|
5,712
|
|
|
|
5,204
|
|
Consumer
|
|
|
3,898
|
|
|
|
3,652
|
|
|
|
3,488
|
|
Commercial real estate
|
|
|
483
|
|
|
|
952
|
|
|
|
927
|
|
Standby letters of credit
|
|
|
989
|
|
|
|
983
|
|
|
|
1,022
|
|
Commercial letters of credit
|
|
|
179
|
|
|
|
166
|
|
|
|
178
|
|
Commitments to extend credit generally have fixed expiration dates, are
variable-rate, and contain clauses that permit Huntington to terminate or
otherwise renegotiate the contracts in the event of a significant deterioration
in the customers credit quality. These arrangements normally require the
payment of a fee by the customer, the pricing of which is based on prevailing
market conditions, credit quality, probability of funding, and other relevant
factors. Since many of these commitments are expected to expire without being
drawn upon, the contract amounts are not necessarily indicative of future cash
requirements. The interest rate risk arising from these financial instruments
is insignificant as a result of their predominantly short-term, variable-rate
nature.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. These guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. Most of these
arrangements mature within two years. The carrying amount of deferred revenue
associated with these guarantees was $3.9 million, $3.8 million, and $3.9
million at September 30, 2004, December 31, 2003, and September 30, 2003,
respectively.
Commercial letters of credit represent short-term, self-liquidating
instruments that facilitate customer trade transactions and generally have
maturities of no longer than 90 days. The merchandise or cargo being traded
normally secures these instruments.
Litigation:
In the ordinary course of business, there are various legal proceedings
pending against Huntington and its subsidiaries. In the opinion of management,
the aggregate liabilities, if any, arising from such proceedings are not
expected to have a material adverse effect on Huntingtons consolidated
financial position. (See also Note 3.)
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations.
INTRODUCTION
Huntington Bancshares Incorporated (Huntington or the company) is a
multi-state diversified financial holding company organized under Maryland law
in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries,
Huntington is engaged in providing full-service commercial and consumer banking
services, mortgage banking services, automobile financing, equipment leasing,
investment management, trust services, and discount brokerage services, as well
as reinsuring credit life and disability insurance, and selling other insurance
and financial products and services. Huntingtons banking offices are located
in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Selected financial
services are also conducted in other states including Arizona, Florida,
Georgia, Maryland, New Jersey, Pennsylvania, and Tennessee. Huntington has a
foreign office in the Cayman Islands and a foreign office in Hong Kong. The
Huntington National Bank (the Bank), organized in 1866, is Huntingtons only
bank subsidiary.
The following discussion and analysis provides investors and others with
information that Management believes to be necessary for an understanding of
Huntingtons financial condition, changes in financial condition, results of
operations, and cash flows, and should be read in conjunction with the
financial statements, notes, and other information contained in this report.
Forward-Looking Statements
This report, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements about
Huntington. These include descriptions of products or services, plans or
objectives of Management for future operations, including pending acquisitions,
and forecasts of revenues, earnings, cash flows, or other measures of economic
performance. Forward-looking statements can be identified by the fact that they
do not relate strictly to historical or current facts.
By their nature, forward-looking statements are subject to numerous
assumptions, risks, and uncertainties. A number of factors could cause actual
conditions, events, or results to differ significantly from those described in
the forward-looking statements. These factors include, but are not limited to,
those set forth below and under the heading Business Risks included in Item 1
of Huntingtons Annual Report on Form 10-K for the year ended December 31, 2003
(2003 Form 10-K), and other factors described in this report and from
time-to-time in other filings with the Securities and Exchange Commission.
Management encourages readers of this report to understand forward-looking
statements to be strategic objectives rather than absolute forecasts of future
performance. Forward-looking statements speak only as of the date they are
made. Huntington assumes no obligation to update forward-looking statements to
reflect circumstances or events that occur after the date the forward-looking
statements were made or to reflect the occurrence of unanticipated events.
Risk Factors
Huntington, like other financial companies, is subject to a number of
risks, many of which are outside of Managements control, though Management
strives to manage those risks while optimizing returns. Among the risks assumed
are: (1) credit risk, which is the risk that loan and lease customers or other
counter parties will be unable to perform their contractual obligations, (2)
market risk, which is the risk that changes in market rates and prices will
adversely affect Huntingtons financial condition or results of operations, (3)
liquidity risk, which is the risk that Huntington and / or the Bank will have
insufficient cash or access to cash to meet operating needs, and (4)
operational risk, which is the risk of loss resulting from inadequate or failed
internal processes, people, or systems, or external events. The description of
Huntingtons business contained in Item 1 of its 2003 Form 10-K, while not all
inclusive, discusses a number of business risks that, in addition to the other
information in this report, readers should carefully consider.
Formal Supervisory Agreements and Securities and Exchange Commission
Investigation
On November 3, 2004, Huntington announced that it expects to enter into
formal supervisory agreements with its banking regulators, the Federal Reserve
and the Office of the Controller of the Currency, providing for a comprehensive
action plan designed to address its financial reporting and accounting
policies, procedures, and controls and its corporate governance practices.
Huntington remains in active dialogue with its banking regulators concerning
these and related matters.
As part of its November 3, 2004, announcement, Huntington indicated that
it is negotiating a one-year extension of its merger agreement with Unizan.
Huntington intends to withdraw its current application with the Federal Reserve
to
19
acquire Unizan and to resubmit the application for regulatory approval of
the merger once it has successfully resolved the aforementioned regulatory
concerns.
As previously disclosed, Huntington continues to have ongoing discussions
with the staff of the Securities and Exchange Commission (SEC) regarding
resolution of its formal investigation into certain financial accounting
matters relating to fiscal years 2002 and earlier and certain related
disclosure matters. It is anticipated that a settlement of this matter will
involve the entry of an order by the SEC requiring Huntington to comply with
various provisions of the Securities Exchange Act of 1934 and the Securities
Act of 1933, along with the imposition of a civil money penalty.
Huntingtons
Board of Directors has been overseeing a review of the Companys
financial accounting and reporting practices as they relate to the
Companys previous accounting restatements and other related
matters during the course of the pending SEC formal investigation. It has recently
engaged the Promontory Financial Group to provide assistance with
respect to these and related regulatory matters.
Huntington believes that it will be able to address all of the issues that
have been raised by the SEC and its banking regulators concerning these matters
in a comprehensive manner and is working aggressively to do so. No assurances,
however, can be provided as to the ultimate timing or outcome of these matters
pending a final settlement.
Critical Accounting Policies and Use of Significant Estimates
Huntingtons 2003 Form 10-K lists Critical Accounting Policies and Use of
Significant Estimates used in the development and presentation of its financial
statements. These significant accounting policies, as well as the following
discussion and analysis and other financial statement disclosures, identify and
address key variables and other qualitative and quantitative factors that are
necessary for an understanding and evaluation of Huntington, its financial
position, results of operations, and cash flows.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States (GAAP) requires Huntingtons
Management to establish critical accounting policies and make accounting
estimates, assumptions, and judgments that affect amounts recorded and reported
in its financial statements. An accounting estimate requires assumptions about
uncertain matters that could have a material effect on the financial statements
of Huntington if a different amount within a range of estimates were used or if
estimates changed from period to period. Readers of this interim report should
understand that estimates are made under facts and circumstances at a point in
time and changes in those facts and circumstances could produce actual results
that differ from when those estimates were made. Huntingtons Management has
identified the most significant accounting estimates and their related
application in Huntingtons 2003 Form 10-K.
SUMMARY DISCUSSION OF RESULTS
Earnings comparisons from the first nine-months of 2003 through the first
nine-months of 2004, including comparisons of third quarter of 2003 with the
third quarter of 2004 performance, were impacted by a number of factors, some
related to changes in the economic and competitive environment, while others
reflected specific Management strategies or changes in accounting practices.
Understanding the nature and implications of these factors on financial results
is important in understanding the companys income statement, balance sheet,
and credit quality trends and the comparison of the current quarter and
year-to-date performance with comparable prior-year periods. The key factors
impacting the current reporting period comparisons are more fully described in
the Significant Factors Influencing Financial Performance Comparisons section,
which follows the summary of results below.
2004 Third Quarter versus 2003 Third Quarter
Huntingtons 2004 third quarter earnings were $93.5 million, or $0.40 per
common share, both up 3% from $90.9 million and $0.39 per common share in the
year-ago quarter. This $2.6 million increase in earnings primarily reflected:
|
|
$39.8 million, or 77%, reduction in the provision for credit losses,
reflecting improved credit quality performance,
|
|
|
|
$26.8 million, or 9%, reduction in non-interest expense, primarily
due to a decline in operating lease expense,
|
|
|
|
$6.9 million, or 3%, increase in fully taxable equivalent net
interest income, reflecting the benefit of an increase in earning
assets, primarily loans and leases, partially offset by a decline in the
net interest margin, and
|
|
|
|
$13.3 million cumulative effect of a change in accounting principle,
net of tax, in the year-ago quarter.
|
Partially offset by:
|
|
$82.9 million, or 30%, decline in non-interest income, reflecting
declines in operating lease income, mortgage banking income, gains on
sale of automobile loans, and gain on sale of West Virginia banking
offices, partially
|
20
|
|
offset by higher investment securities gains, and
|
|
|
|
$1.0 million, or 3%, increase in income tax expense, reflecting the impact of a higher effective tax rate.
|
The return on average assets (ROA) and return on average equity (ROE),
were 1.18% and 15.4%, respectively, down from 1.38% and 18.5%, respectively, in
the year-ago quarter (see Table 1).
2004 Third Quarter versus 2004 Second Quarter
Compared with 2004 second quarter net income of $110.1 million and $0.47
per common share, 2004 third quarter earnings and earnings per share were both
down 15%. This $16.6 million decrease in earnings primarily reflected:
|
|
$28.2 million, or 13%, decline in non-interest income, primarily due
to declines in mortgage banking and operating lease income, partially
offset by higher investment securities gains, and
|
|
|
|
$6.8 million increase in the provision for credit losses, as the 2004
second quarter included the benefit of a $9.7 million one-time recovery
on a single commercial (C&I) credit.
|
Partially offset by:
|
|
$8.7 million, or 3%, decline in non-interest expense, primarily due to lower operating lease expense, and
|
|
|
|
$4.4 million, or 2%, increase in fully taxable equivalent net
interest income, reflecting the benefit of an increase in earning
assets, primarily loans and leases, as well as a slight increase in the
net interest margin,
|
|
|
|
$5.1 million, or 12%, reduction in income tax expense, primarily as a
result of the lower level of pre-tax income.
|
The ROA and ROE were 1.18% and 15.4%, respectively, in the current
quarter, down from 1.41% and 19.1%, respectively, in the prior quarter (see
Table 1).
2004 First Nine Months versus 2003 First Nine Months
Earnings for the first nine months of 2004 were $307.8 million, or $1.32
per common share, up 10% and 9%, respectively, from the comparable year-ago
period earnings of $279.1 million or $1.21 per common share. This $28.7
million increase in earnings primarily reflected:
|
|
$95.2 million, or 69%, reduction in the provision for credit losses,
reflecting improved credit quality performance,
|
|
|
|
$71.5 million, or 8%, reduction in non-interest expense, primarily
due to a decline in operating lease expense, partially offset by higher
personnel costs,
|
|
|
|
$49.7 million, or 8%, increase in fully taxable equivalent net
interest income, reflecting the benefit of an increase in earning
assets, primarily loans and leases, partially offset by a decline in the
net interest margin, and
|
|
|
|
$13.3 million cumulative effect of a change in accounting principle,
net of tax, in the year-ago period.
|
Partially offset by:
|
|
$187.0 million, or 23%, decline in non-interest income, reflecting
declines in operating lease income, mortgage banking income, and gains
on sale of automobile loans and the absence of a gain on the sale of
branch offices in the year-ago period, and
|
|
|
|
$12.0 million, or 11%, increase in income tax expense, reflecting
higher level of pre-tax income, as well as the impact of a slightly
higher effective tax rate.
|
The ROA and ROE were 1.32% and 17.6%, respectively, in the current nine-month
period, down slightly from 1.37% and 17.9%, respectively, in the comparable
year-ago period (see Table 2).
21
Table 1 Selected Quarterly Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
3Q04 vs 3Q03
|
(in thousands, except per share amounts)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
$ Chg
|
|
% Chg
|
Interest Income
|
|
$
|
338,002
|
|
|
$
|
324,167
|
|
|
$
|
325,931
|
|
|
$
|
335,097
|
|
|
$
|
333,320
|
|
|
$
|
4,682
|
|
|
|
1.4
|
%
|
Interest Expense
|
|
|
110,944
|
|
|
|
101,604
|
|
|
|
103,246
|
|
|
|
110,782
|
|
|
|
112,849
|
|
|
|
(1,905
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
227,058
|
|
|
|
222,563
|
|
|
|
222,685
|
|
|
|
224,315
|
|
|
|
220,471
|
|
|
|
6,587
|
|
|
|
3.0
|
|
Provision for credit losses
|
|
|
11,785
|
|
|
|
5,027
|
|
|
|
25,596
|
|
|
|
26,341
|
|
|
|
51,615
|
|
|
|
(39,830
|
)
|
|
|
(77.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After
Provision for Credit Losses
|
|
|
215,273
|
|
|
|
217,536
|
|
|
|
197,089
|
|
|
|
197,974
|
|
|
|
168,856
|
|
|
|
46,417
|
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
|
|
64,412
|
|
|
|
78,706
|
|
|
|
88,867
|
|
|
|
105,307
|
|
|
|
117,624
|
|
|
|
(53,212
|
)
|
|
|
(45.2
|
)
|
Service charges on deposit accounts
|
|
|
43,935
|
|
|
|
43,596
|
|
|
|
41,837
|
|
|
|
44,763
|
|
|
|
42,294
|
|
|
|
1,641
|
|
|
|
3.9
|
|
Trust services
|
|
|
17,064
|
|
|
|
16,708
|
|
|
|
16,323
|
|
|
|
15,793
|
|
|
|
15,365
|
|
|
|
1,699
|
|
|
|
11.1
|
|
Brokerage and insurance income
|
|
|
13,200
|
|
|
|
13,523
|
|
|
|
15,197
|
|
|
|
14,344
|
|
|
|
13,807
|
|
|
|
(607
|
)
|
|
|
(4.4
|
)
|
Mortgage banking
|
|
|
4,448
|
|
|
|
23,322
|
|
|
|
(4,296
|
)
|
|
|
9,677
|
|
|
|
30,193
|
|
|
|
(25,745
|
)
|
|
|
(85.3
|
)
|
Bank owned life insurance income
|
|
|
10,019
|
|
|
|
11,309
|
|
|
|
10,485
|
|
|
|
10,410
|
|
|
|
10,438
|
|
|
|
(419
|
)
|
|
|
(4.0
|
)
|
Other service charges and fees
|
|
|
10,799
|
|
|
|
10,645
|
|
|
|
9,513
|
|
|
|
9,237
|
|
|
|
10,499
|
|
|
|
300
|
|
|
|
2.9
|
|
Gain on sales of automobile loans
|
|
|
312
|
|
|
|
4,890
|
|
|
|
9,004
|
|
|
|
16,288
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
Gain on sale of branch offices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,112
|
|
|
|
(13,112
|
)
|
|
|
N.M.
|
|
Securities gains (losses)
|
|
|
7,803
|
|
|
|
(9,230
|
)
|
|
|
15,090
|
|
|
|
1,280
|
|
|
|
(4,107
|
)
|
|
|
11,910
|
|
|
|
N.M.
|
|
Other
|
|
|
17,899
|
|
|
|
24,659
|
|
|
|
25,619
|
|
|
|
19,411
|
|
|
|
23,543
|
|
|
|
(5,644
|
)
|
|
|
(24.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
189,891
|
|
|
|
218,128
|
|
|
|
227,639
|
|
|
|
246,510
|
|
|
|
272,768
|
|
|
|
(82,877
|
)
|
|
|
(30.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
121,729
|
|
|
|
119,715
|
|
|
|
121,624
|
|
|
|
115,762
|
|
|
|
113,170
|
|
|
|
8,559
|
|
|
|
7.6
|
|
Operating lease expense
|
|
|
54,885
|
|
|
|
62,563
|
|
|
|
70,710
|
|
|
|
85,609
|
|
|
|
93,134
|
|
|
|
(38,249
|
)
|
|
|
(41.1
|
)
|
Outside data processing and other services
|
|
|
17,527
|
|
|
|
17,563
|
|
|
|
18,462
|
|
|
|
15,957
|
|
|
|
17,478
|
|
|
|
49
|
|
|
|
0.3
|
|
Equipment
|
|
|
15,295
|
|
|
|
16,228
|
|
|
|
16,086
|
|
|
|
16,840
|
|
|
|
16,328
|
|
|
|
(1,033
|
)
|
|
|
(6.3
|
)
|
Net occupancy
|
|
|
16,838
|
|
|
|
16,258
|
|
|
|
16,763
|
|
|
|
14,925
|
|
|
|
15,570
|
|
|
|
1,268
|
|
|
|
8.1
|
|
Professional services
|
|
|
12,219
|
|
|
|
7,836
|
|
|
|
7,299
|
|
|
|
12,175
|
|
|
|
11,116
|
|
|
|
1,103
|
|
|
|
9.9
|
|
Marketing
|
|
|
5,000
|
|
|
|
8,069
|
|
|
|
7,839
|
|
|
|
6,895
|
|
|
|
5,515
|
|
|
|
(515
|
)
|
|
|
(9.3
|
)
|
Telecommunications
|
|
|
5,359
|
|
|
|
4,638
|
|
|
|
5,194
|
|
|
|
5,272
|
|
|
|
5,612
|
|
|
|
(253
|
)
|
|
|
(4.5
|
)
|
Printing and supplies
|
|
|
3,201
|
|
|
|
3,098
|
|
|
|
3,016
|
|
|
|
3,417
|
|
|
|
3,658
|
|
|
|
(457
|
)
|
|
|
(12.5
|
)
|
Amortization of intangibles
|
|
|
204
|
|
|
|
204
|
|
|
|
204
|
|
|
|
204
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve releases
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
(1,151
|
)
|
|
|
|
|
Other
|
|
|
22,317
|
|
|
|
25,981
|
|
|
|
18,457
|
|
|
|
25,510
|
|
|
|
18,397
|
|
|
|
3,920
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
|
273,423
|
|
|
|
282,153
|
|
|
|
285,654
|
|
|
|
317,465
|
|
|
|
300,182
|
|
|
|
(26,759
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
131,741
|
|
|
|
153,511
|
|
|
|
139,074
|
|
|
|
127,019
|
|
|
|
141,442
|
|
|
|
(9,701
|
)
|
|
|
(6.9
|
)
|
Provision for income taxes
|
|
|
38,255
|
|
|
|
43,384
|
|
|
|
34,901
|
|
|
|
33,758
|
|
|
|
37,230
|
|
|
|
1,025
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle
|
|
|
93,486
|
|
|
|
110,127
|
|
|
|
104,173
|
|
|
|
93,261
|
|
|
|
104,212
|
|
|
|
(10,726
|
)
|
|
|
(10.3
|
)
|
Cumulative effect of change in accounting
principle, net of tax
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,330
|
)
|
|
|
13,330
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
93,486
|
|
|
$
|
110,127
|
|
|
$
|
104,173
|
|
|
$
|
93,261
|
|
|
$
|
90,882
|
|
|
$
|
2,604
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
common shares - diluted
|
|
|
234,348
|
|
|
|
232,659
|
|
|
|
232,915
|
|
|
|
231,986
|
|
|
|
230,966
|
|
|
|
3,382
|
|
|
|
1.5
|
%
|
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle - Diluted
|
|
$
|
0.40
|
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
|
$
|
0.40
|
|
|
$
|
0.45
|
|
|
$
|
(0.05
|
)
|
|
|
(11.1
|
)%
|
Net Income - Diluted
|
|
|
0.40
|
|
|
|
0.47
|
|
|
|
0.45
|
|
|
|
0.40
|
|
|
|
0.39
|
|
|
|
0.01
|
|
|
|
2.6
|
|
Cash Dividends Declared
|
|
|
0.200
|
|
|
|
0.175
|
|
|
|
0.175
|
|
|
|
0.175
|
|
|
|
0.175
|
|
|
|
0.025
|
|
|
|
14.3
|
|
Return on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(2)
|
|
|
1.18
|
%
|
|
|
1.41
|
%
|
|
|
1.36
|
%
|
|
|
1.22
|
%
|
|
|
1.38
|
%
|
|
|
(0.20
|
)%
|
|
|
(14.6
|
)
|
Average total shareholders equity
(2)
|
|
|
15.4
|
|
|
|
19.1
|
|
|
|
18.4
|
|
|
|
16.6
|
|
|
|
18.5
|
|
|
|
(3.04
|
)
|
|
|
(16.5
|
)
|
Net interest margin
(3)
|
|
|
3.30
|
|
|
|
3.29
|
|
|
|
3.36
|
|
|
|
3.42
|
|
|
|
3.46
|
|
|
|
(0.16
|
)
|
|
|
(4.6
|
)
|
Efficiency
ratio
(4)
|
|
|
66.3
|
|
|
|
62.3
|
|
|
|
65.1
|
|
|
|
67.1
|
|
|
|
60.0
|
|
|
|
6.31
|
|
|
|
10.5
|
|
Effective tax rate
|
|
|
29.0
|
|
|
|
28.3
|
|
|
|
25.1
|
|
|
|
26.6
|
|
|
|
26.3
|
|
|
|
2.72
|
|
|
|
10.3
|
|
Revenue - Fully Taxable Equivalent (FTE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
227,058
|
|
|
$
|
222,563
|
|
|
$
|
222,685
|
|
|
$
|
224,315
|
|
|
$
|
220,471
|
|
|
$
|
6,587
|
|
|
|
3.0
|
|
FTE Adjustment
(3)
|
|
|
2,864
|
|
|
|
2,919
|
|
|
|
3,023
|
|
|
|
2,954
|
|
|
|
2,558
|
|
|
|
306
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
229,922
|
|
|
|
225,482
|
|
|
|
225,708
|
|
|
|
227,269
|
|
|
|
223,029
|
|
|
|
6,893
|
|
|
|
3.1
|
|
Non-Interest Income
|
|
|
189,891
|
|
|
|
218,128
|
|
|
|
227,639
|
|
|
|
246,510
|
|
|
|
272,768
|
|
|
|
(82,877
|
)
|
|
|
(30.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
419,813
|
|
|
$
|
443,610
|
|
|
$
|
453,347
|
|
|
$
|
473,779
|
|
|
$
|
495,797
|
|
|
$
|
(75,984
|
)
|
|
|
(15.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M.
- Not Meaningful.
(1)
|
|
Due to the adoption of FASB Interpretation No. 46 for variable interest entities.
|
|
(2)
|
|
Based on income before cumulative effect of change in accounting principle, net of tax.
|
|
(3)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(4)
|
|
Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).
|
22
Table 2 - Selected YTD Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2004 vs. 2003
|
(in thousands of dollars, except per share amounts)
|
|
2004
|
|
2003
|
|
Amount
|
|
%
|
Interest Income
|
|
$
|
988,100
|
|
|
$
|
970,659
|
|
|
$
|
17,441
|
|
|
|
1.8
|
%
|
Interest Expense
|
|
|
315,794
|
|
|
|
345,988
|
|
|
|
(30,194
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
672,306
|
|
|
|
624,671
|
|
|
|
47,635
|
|
|
|
7.6
|
|
Provision for credit losses
|
|
|
42,408
|
|
|
|
137,652
|
|
|
|
(95,244
|
)
|
|
|
(69.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After
Provision for Credit Losses
|
|
|
629,898
|
|
|
|
487,019
|
|
|
|
142,879
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
|
|
231,985
|
|
|
|
384,391
|
|
|
|
(152,406
|
)
|
|
|
(39.6
|
)
|
Service charges on deposit accounts
|
|
|
129,368
|
|
|
|
123,077
|
|
|
|
6,291
|
|
|
|
5.1
|
|
Trust services
|
|
|
50,095
|
|
|
|
45,856
|
|
|
|
4,239
|
|
|
|
9.2
|
|
Brokerage and insurance income
|
|
|
41,920
|
|
|
|
43,500
|
|
|
|
(1,580
|
)
|
|
|
(3.6
|
)
|
Mortgage banking
|
|
|
23,474
|
|
|
|
48,503
|
|
|
|
(25,029
|
)
|
|
|
(51.6
|
)
|
Bank owned life insurance income
|
|
|
31,813
|
|
|
|
32,618
|
|
|
|
(805
|
)
|
|
|
(2.5
|
)
|
Other service charges and fees
|
|
|
30,957
|
|
|
|
32,209
|
|
|
|
(1,252
|
)
|
|
|
(3.9
|
)
|
Gain on sales of automobile loans
|
|
|
14,206
|
|
|
|
23,751
|
|
|
|
(9,545
|
)
|
|
|
(40.2
|
)
|
Gain on sale of branch offices
|
|
|
|
|
|
|
13,112
|
|
|
|
(13,112
|
)
|
|
|
N.M.
|
|
Securities gains (losses)
|
|
|
13,663
|
|
|
|
3,978
|
|
|
|
9,685
|
|
|
|
N.M.
|
|
Other
|
|
|
68,177
|
|
|
|
71,648
|
|
|
|
(3,471
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
635,658
|
|
|
|
822,643
|
|
|
|
(186,985
|
)
|
|
|
(22.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
363,068
|
|
|
|
331,501
|
|
|
|
31,567
|
|
|
|
9.5
|
|
Operating lease expense
|
|
|
188,158
|
|
|
|
307,661
|
|
|
|
(119,503
|
)
|
|
|
(38.8
|
)
|
Outside data processing and other services
|
|
|
53,552
|
|
|
|
50,161
|
|
|
|
3,391
|
|
|
|
6.8
|
|
Equipment
|
|
|
47,609
|
|
|
|
49,081
|
|
|
|
(1,472
|
)
|
|
|
(3.0
|
)
|
Net occupancy
|
|
|
49,859
|
|
|
|
47,556
|
|
|
|
2,303
|
|
|
|
4.8
|
|
Professional services
|
|
|
27,354
|
|
|
|
30,273
|
|
|
|
(2,919
|
)
|
|
|
(9.6
|
)
|
Marketing
|
|
|
20,908
|
|
|
|
20,595
|
|
|
|
313
|
|
|
|
1.5
|
|
Telecommunications
|
|
|
15,191
|
|
|
|
16,707
|
|
|
|
(1,516
|
)
|
|
|
(9.1
|
)
|
Printing and supplies
|
|
|
9,315
|
|
|
|
9,592
|
|
|
|
(277
|
)
|
|
|
(2.9
|
)
|
Amortization of intangibles
|
|
|
612
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve releases
|
|
|
(1,151
|
)
|
|
|
(6,315
|
)
|
|
|
5,164
|
|
|
|
(81.8
|
)
|
Other
|
|
|
66,755
|
|
|
|
55,270
|
|
|
|
11,485
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
|
841,230
|
|
|
|
912,694
|
|
|
|
(71,464
|
)
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
424,326
|
|
|
|
396,968
|
|
|
|
27,358
|
|
|
|
6.9
|
|
Provision for income taxes
|
|
|
116,540
|
|
|
|
104,536
|
|
|
|
12,004
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle
|
|
|
307,786
|
|
|
|
292,432
|
|
|
|
15,354
|
|
|
|
5.3
|
|
Cumulative effect of change in accounting
principle, net of tax
(1)
|
|
|
|
|
|
|
(13,330
|
)
|
|
|
13,330
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
307,786
|
|
|
$
|
279,102
|
|
|
$
|
28,684
|
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in
accounting principle - Diluted
|
|
$
|
1.32
|
|
|
$
|
1.26
|
|
|
$
|
0.06
|
|
|
|
4.8
|
%
|
Net Income - Diluted
|
|
|
1.32
|
|
|
|
1.21
|
|
|
|
0.11
|
|
|
|
9.1
|
|
Cash Dividends Declared
|
|
|
0.550
|
|
|
|
0.495
|
|
|
|
0.055
|
|
|
|
11.1
|
|
Return on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(2)
|
|
|
1.32
|
%
|
|
|
1.37
|
%
|
|
|
(0.06
|
)%
|
|
|
(4.1
|
)%
|
Average total shareholders equity
(2)
|
|
|
17.6
|
|
|
|
17.9
|
|
|
|
(0.32
|
)
|
|
|
(1.8
|
)
|
Net interest margin
(3)
|
|
|
3.31
|
|
|
|
3.52
|
|
|
|
(0.21
|
)
|
|
|
(6.0
|
)
|
Efficiency ratio
(4)
|
|
|
64.5
|
|
|
|
62.9
|
|
|
|
1.61
|
|
|
|
2.6
|
|
Effective tax rate
|
|
|
27.5
|
|
|
|
26.3
|
|
|
|
1.13
|
|
|
|
4.3
|
|
Revenue - Fully Taxable Equivalent (FTE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
672,306
|
|
|
$
|
624,671
|
|
|
$
|
47,635
|
|
|
|
7.6
|
%
|
FTE Adjustment
(3)
|
|
|
8,806
|
|
|
|
6,730
|
|
|
|
2,076
|
|
|
|
30.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
681,112
|
|
|
|
631,401
|
|
|
|
49,711
|
|
|
|
7.9
|
|
Non-Interest Income
|
|
|
635,658
|
|
|
|
822,643
|
|
|
|
(186,985
|
)
|
|
|
(22.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
1,316,770
|
|
|
$
|
1,454,044
|
|
|
$
|
(137,274
|
)
|
|
|
(9.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. - Not Meaningful.
(1)
|
|
Due to the adoption of FASB Interpretation No. 46 for variable interest entities.
|
|
(2)
|
|
Based on income before cumulative effect of change in accounting principle, net of tax.
|
|
(3)
|
|
On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.
|
|
(4)
|
|
Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains.
|
23
Significant Factors Influencing Financial Performance Comparisons
Earnings comparisons from the first nine months of 2003 through the first
nine months of 2004 were impacted by a number of factors, some related to
changes in the economic and competitive environment, while others reflected
specific Management strategies or changes in accounting practices. Those key
factors are summarized below.
1.
|
|
Automobile leases originated through April 2002 are accounted
for as operating leases Automobile leases originated before May
2002 are accounted for using the operating lease method of accounting
because they do not qualify as direct financing leases. Operating
leases are a non-interest earning asset with the related rental
income, other revenue, and credit recoveries reflected as operating
lease income, a component of non-interest income. Under this
accounting method, depreciation expenses, as well as other costs and
charge-offs, are reflected as operating lease expense, a component of
non-interest expense. With no new operating leases originated since
April 2002, the operating lease assets are rapidly decreasing and
will eventually run-off, along with related operating lease income
and expense. Since operating lease income and expense represent a
significant percentage of total non-interest income and expense,
respectively, throughout this reporting period, their downward trend
influences total non-interest income and non-interest expense trends.
|
|
|
|
Automobile leases originated since April 2002 are accounted for as
direct financing leases, an interest earning asset included in total
loans and leases with the related income reflected as interest income
and included in the calculation of the net interest margin. Credit
charge-offs and recoveries are reflected in the allowance for loan and
lease losses (ALLL), with related changes in the ALLL reflected in
provision for credit losses. The relative newness and rapid growth of
this portfolio has resulted in higher reported automobile lease growth
rates than in a more mature portfolio. To better understand overall
trends in automobile lease exposure, it is helpful to compare trends in
the combined total of automobile leases plus operating leases (see the
companys 2003 Form 10-K for a full discussion).
|
|
2.
|
|
Transition from a weak economic environment in 2003 to a slow
recovering economic environment in 2004. The weak economic
environment resulted in continued weak demand for commercial and
industrial (C&I) loans, which, when combined with strategies to lower
the overall credit risk profile of the company (see below), has
contributed to generally declining C&I loans throughout this period.
|
|
3.
|
|
Declining interest rates in 2003 with generally increasing,
though fluctuating, interest rates in 2004. Interest rates impacted,
among other factors, loan and deposit growth, the net interest
margin, and the valuation of mortgage servicing rights (MSRs) and
investment securities.
|
|
|
The historically low interest rate environment in 2003
and 2004, despite a general increase in short-term rates during
the first nine months of 2004, resulted in strong demand and
resultant growth in residential real estate, home equity, and
commercial real estate (CRE) loans generally throughout this
period. Mortgage banking revenue was also favorably impacted by
the significant mortgage origination activity.
|
|
|
|
As interest rates fell in 2003, it became increasingly
difficult to lower interest rates offered on deposit accounts
commensurate with the overall decline in interest rates and yields
on earning assets. This created an extremely competitive
environment in which to grow deposits and resulted in an inability
to lower deposit rates commensurate with the overall decline in
earning asset rates. This contributed to the decline in the net
interest margin throughout 2003. Though short-term interest rates
have risen generally throughout the first nine months of 2004,
they remain at historically low levels and the competition for
deposits has remained very competitive. As a result, deposit
rates have also risen thus not permitting much expansion in the
net interest margin.
|
|
|
|
Since the second quarter of 2002, the company generally
has retained the servicing on mortgage loans it originates and
sells. The mortgage servicing right (MSR) represents the present
value of expected future net servicing income for the loan. MSR
values are very sensitive to movements in interest rates.
Expected future net servicing income depends on the projected
outstanding principal balances of the underlying loans, which can
be greatly reduced by prepayments. Prepayments usually increase
when mortgage interest rates decline and decrease when mortgage
interest rates rise. Thus, as interest rates decline, less future
income is expected and the value of MSRs declines and becomes
impaired when the valuation is less than the recorded book value.
The company recognizes temporary impairment due to change in
interest rates through a valuation reserve and records a direct
write-down of the book value of its MSRs
|
24
|
|
for other-than-temporary declines in valuation. Changes and
fluctuations in interest rate levels between quarters resulted in
some quarters reporting an MSR temporary impairment, with others
reporting a recovery of previously reported MSR temporary
impairment. Such swings in MSR valuations have significantly
impacted quarterly mortgage banking income throughout this period
(see Table 3).
|
|
|
|
The company uses gains or losses on investment
securities, and more recently gains or losses on trading account
assets, to offset MSR temporary valuation changes. As a result,
changes in interest rate levels have also resulted in securities
gains or losses and trading losses. As such, in quarters where an
MSR temporary impairment is recognized, investment securities
and/or trading account assets were sold resulting in a gain on
sale, and vice versa. Investment securities gains or losses are
reflected in the income statement in a single non-interest income
line item, whereas trading gains or losses are a component of
other non-interest income on the income statement. The earnings
impact of the MSR valuation change and securities gain/loss may
not exactly offset due to, among other factors, the difference in
the timing of when the MSR valuation is determined and recorded,
compared with when the securities are sold and any gain or loss is
recorded (see Table 3).
|
4.
|
|
Management strategies to lower the overall credit risk profile
of the balance sheet. Throughout this period, certain strategies
were implemented to lower the overall credit risk profile of the
balance sheet with the objective of lowering the volatility of
earnings.
|
|
|
Automobile loan sales One strategy has been to lower
the credit exposure to automobile loans and leases to at least 20%
of total credit exposure, as manifested through the sale of
automobile loans. These sales of higher-rate, higher-risk loans
impact results in a number of ways including: lower growth rates
in automobile, total consumer, and total company loans; the
generation of gains reflected in non-interest income; lower net
interest income than otherwise would be the case if the loans were
not sold; and lower net interest margin (see Table 3).
|
|
|
|
Reduction in large-individual C&I and CRE credits This
strategy has been reflected in the reduction in shared national
credits, as well as other, mostly C&I loans. In addition, the
company sold and charged-off lower-quality C&I and CRE credits in
2003 and 2004. This strategy was a contributing factor in the
declines in C&I loan balances, NPAs, and the ALLL. In certain
quarters, this strategy contributed to higher C&I net charge-offs.
|
5.
|
|
Adoption of FIN 46 Effective July 1, 2003, the company
adopted Financial Accounting Standards Board (FASB) Interpretation
No. 46 (FIN 46),
Consolidation of Variable Interest Entities
. The
adoption of FIN 46 resulted in the consolidation of $1.0 billion of
previously securitized automobile loans and a $13.3 million after-tax
charge in the 2003 third quarter for the cumulative effect of a
change in accounting principle (see Tables 1 and 2).
|
|
6.
|
|
Corporate Restructuring Charges 2003 and 2004 non-interest
expense reflected recoveries of previously established corporate
restructuring reserves, which were no longer needed (see Table 3) and
lowered 2003 and 2004 non-interest expense (see Note 21 of the
companys 2003 Form 10-K Notes to Consolidated Financial Statements).
|
|
7.
|
|
Single commercial recovery A single commercial credit
recovery in the 2004 second quarter on a loan previously charged off
in the 2002 fourth quarter favorably impacted the 2004 second quarter
provision expense (see Table 3), as well as C&I, total commercial,
and total net charge-offs for the quarter (see Table 11).
|
|
8.
|
|
Gain on the sale of West Virginia banking offices In the 2003
third quarter, the company sold four banking offices in West Virginia
which resulted in a $13.1 million gain (see Tables 1 and 2).
|
|
9.
|
|
SEC related expenses and accruals As previously disclosed,
the Securities and Exchange Commission (SEC) is conducting a formal
investigation regarding certain financial accounting and disclosure
matters, including certain matters that were the subject of prior
restatements by Huntington (see Note 3 of the Notes to Unaudited
Condensed Consolidated Financial Statements). For the first nine
months of 2004, the company recorded certain expenses and accruals
related to this investigation, most notably in the third quarter (see
Table 3).
|
25
10.
|
|
Unizan system conversion expenses On January 27, Huntington
announced the signing of a definitive agreement to acquire Unizan
Financial Corp. (Unizan), a financial holding company based in
Canton, Ohio (see Note 4 of the Notes to Unaudited Condensed
Consolidated Financial Statements). In the 2004 third quarter, the
company recorded certain integration planning and system conversion
expenses related to this pending acquisition (see Table 3).
|
The following table quantifies the earnings impact of changes in SEC
related expenses / accruals, Unizan system conversion expenses, MSR and
investment securities and trading account valuations, gains on sales of
automobile loans, restructuring reserve releases, sale of the West Virginia
banking offices, and a single, large commercial credit recovery on the
specified periods.
Table
3 - Significant Items Influencing Earnings Performance Comparisons
|
|
|
|
|
|
|
|
|
|
|
Impact
|
(in millions, except per share )
|
|
Pre-tax
|
|
EPS
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
September 30, 2004 - GAAP earnings
|
|
$
|
131.7
|
|
|
$
|
0.40
|
|
SEC related expenses / accruals
|
|
|
(5.5
|
)
|
|
|
(0.02
|
)
|
Unizan system conversion expense
|
|
|
(1.8
|
)
|
|
|
(0.01
|
)
|
Mortgage servicing right (MSR) temporary impairment
|
|
|
(4.1
|
)
|
|
|
(0.01
|
)
|
MSR-related trading losses
|
|
|
(2.3
|
)
|
|
|
(0.01
|
)
|
Investment securities gains
|
|
|
7.8
|
|
|
|
0.02
|
|
|
September 30, 2003 - GAAP earnings
|
|
$
|
141.4
|
|
|
$
|
0.45
|
|
SEC related expenses
|
|
|
(4.7
|
)
|
|
|
(0.01
|
)
|
Gains on sale of West Virginia offices
|
|
|
13.1
|
|
|
|
0.04
|
|
MSR temporary impairment recovery
|
|
|
17.8
|
|
|
|
0.05
|
|
Investment securities losses
|
|
|
(4.1
|
)
|
|
|
(0.01
|
)
|
|
Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
September 30, 2004 - GAAP earnings
|
|
$
|
424.3
|
|
|
$
|
1.32
|
|
SEC related expenses / accruals
|
|
|
(7.1
|
)
|
|
|
(0.02
|
)
|
Unizan system conversion expense
|
|
|
(2.7
|
)
|
|
|
(0.01
|
)
|
Gains on sales of automobile loans
|
|
|
14.2
|
|
|
|
0.04
|
|
MSR-related trading losses
|
|
|
(2.3
|
)
|
|
|
(0.01
|
)
|
Investment securities gains
|
|
|
13.7
|
|
|
|
0.04
|
|
Single commercial credit recovery
|
|
|
9.7
|
|
|
|
0.03
|
|
|
September 30, 2003 - GAAP earnings
|
|
$
|
397.0
|
|
|
$
|
1.26
|
|
SEC related expenses
|
|
|
(5.1
|
)
|
|
|
(0.01
|
)
|
Gains on sale of West Virginia offices
|
|
|
13.1
|
|
|
|
0.04
|
|
Gains on sales of automobile loans
|
|
|
23.8
|
|
|
|
0.07
|
|
MSR temporary impairment recovery
|
|
|
11.4
|
|
|
|
0.03
|
|
Investment securities gains
|
|
|
4.0
|
|
|
|
0.01
|
|
Restructuring reserve releases
|
|
|
6.3
|
|
|
|
0.02
|
|
26
RESULTS OF OPERATIONS
Net Interest Income
2004 Third Quarter versus 2003 Third Quarter
Fully taxable equivalent net interest income increased $6.9 million, or
3%, from the year-ago quarter, reflecting the favorable impact of an 8%
increase in average earning assets, partially offset by a 16 basis point, or an
effective 5%, decline in the net interest margin. The fully taxable equivalent
net interest margin decreased to 3.30% from 3.46%, reflecting the impact of
lower rates and the strategic repositioning of portfolios to reduce automobile
loans and to increase the relative proportion of lower-rate, and lower-risk,
residential real estate-related loans and investment securities.
Average total loans and leases increased $1.7 billion, or 8%, from the
2003 third quarter due primarily to a $1.3 billion, or 11%, increase in average
consumer loans. Contributing to the consumer loan growth was a $1.8 billion,
or 84%, increase in average residential mortgages and a $0.5 billion, or 15%,
increase in average home equity loans. Demand for residential mortgages and
home equity loans remained strong during this twelve month period as interest
rates remained near historically low levels. Average total automobile loans
and leases decreased $1.1 billion, or 21%. This decline from the year-ago
quarter reflected the sale of $2.6 billion of automobile loans over this
12-month period, partially offset by the rapid growth in direct financing
leases due to the migration from operating lease assets, which have not been
originated since April 2002.
During the third quarter, $153 million of automobile loans were sold,
including $102 million of automobile loans transferred to loans held for sale
during the 2004 second quarter. Combined, these transactions resulted in third
quarter net pre-tax gains on the sale of automobile loans of $0.3 million. On
a combined basis, these transactions increased the total automobile loans sold
since the beginning of 2003 to $3.7 billion. These sales represented a
continuation of a strategy to reduce exposure to automobile financing to
approximately 20% of total credit exposure (see Table 10). At September 30,
2004, this exposure was $4.9 billion, down from $6.2 billion at year end and
represented 21% of total credit exposure, down from 28% at year end 2003, and
30% at September 30, 2003.
Average total commercial and industrial (C&I) and commercial real estate
(CRE) loan balances were $9.8 billion, up $0.4 billion, or 5%, from the
year-ago quarter. This $9.8 billion consisted of middle-market C&I ($4.3
billion, down from $4.5 billion), middle market CRE ($3.5 billion, up from $3.1
billion), and small business C&I and CRE ($1.9 billion) loans. Small business
C&I and CRE loans increased $188 million, or 11%. Middle-market C&I and CRE
balances were impacted by a June 30, 2004 reclassification of $282 million of
C&I loans to CRE loans. Adjusting for this reclassification, average
middle-market C&I loans increased $93 million, or 2%, from the year-ago quarter
and middle-market CRE loans increased $143 million, or 4%.
Average investment securities increased $0.7 billion, or 18%, from the
year-ago quarter. This increase reflected the use of some of the proceeds from
the previous sales of automobile loans to purchase 10-year variable rate
securities.
Average total core deposits in the third quarter were $16.5 billion, up
$0.7 billion, or 4%, from the year-ago quarter, reflecting a $0.8 billion, or
13%, increase in average interest bearing demand deposit accounts, partially
offset by a $0.1 billion, or 6%, decline in retail CDs.
Tables 4 and 5 reflect quarterly average balance sheets and rates earned
and paid on interest-earning assets and interest-bearing liabilities:
27
Table 4 Condensed Consolidated Quarterly Average Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
(in millions)
|
|
2004
|
|
2003
|
|
3Q04 vs. 3Q03
|
Fully Taxable Equivalent Basis
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Amount
|
|
Percent
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
$
|
55
|
|
|
$
|
69
|
|
|
$
|
79
|
|
|
$
|
83
|
|
|
$
|
90
|
|
|
$
|
(35
|
)
|
|
|
(38.9
|
)%
|
Trading account securities
|
|
|
148
|
|
|
|
28
|
|
|
|
16
|
|
|
|
11
|
|
|
|
11
|
|
|
|
137
|
|
|
|
N.M.
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
318
|
|
|
|
168
|
|
|
|
92
|
|
|
|
117
|
|
|
|
103
|
|
|
|
215
|
|
|
|
N.M.
|
|
Loans held for sale
|
|
|
283
|
|
|
|
254
|
|
|
|
207
|
|
|
|
295
|
|
|
|
898
|
|
|
|
(615
|
)
|
|
|
(68.5
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,340
|
|
|
|
4,861
|
|
|
|
4,646
|
|
|
|
4,093
|
|
|
|
3,646
|
|
|
|
694
|
|
|
|
19.0
|
|
Tax exempt
|
|
|
398
|
|
|
|
410
|
|
|
|
437
|
|
|
|
421
|
|
|
|
362
|
|
|
|
36
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities
|
|
|
4,738
|
|
|
|
5,271
|
|
|
|
5,083
|
|
|
|
4,514
|
|
|
|
4,008
|
|
|
|
730
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
5,339
|
|
|
|
5,536
|
|
|
|
5,365
|
|
|
|
5,382
|
|
|
|
5,380
|
|
|
|
(41
|
)
|
|
|
(0.8
|
)
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,577
|
|
|
|
1,322
|
|
|
|
1,322
|
|
|
|
1,297
|
|
|
|
1,258
|
|
|
|
319
|
|
|
|
25.4
|
|
Commercial
|
|
|
2,890
|
|
|
|
2,906
|
|
|
|
2,876
|
|
|
|
2,830
|
|
|
|
2,744
|
|
|
|
146
|
|
|
|
5.3
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
1,857
|
|
|
|
2,337
|
|
|
|
3,041
|
|
|
|
3,529
|
|
|
|
3,594
|
|
|
|
(1,737
|
)
|
|
|
(48.3
|
)
|
Automobile leases
|
|
|
2,250
|
|
|
|
2,139
|
|
|
|
1,988
|
|
|
|
1,802
|
|
|
|
1,590
|
|
|
|
660
|
|
|
|
41.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Automobile Loans and
Leases
|
|
|
4,107
|
|
|
|
4,476
|
|
|
|
5,029
|
|
|
|
5,331
|
|
|
|
5,184
|
|
|
|
(1,077
|
)
|
|
|
(20.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
(1)
|
|
|
3,970
|
|
|
|
3,824
|
|
|
|
3,693
|
|
|
|
3,556
|
|
|
|
3,443
|
|
|
|
527
|
|
|
|
15.3
|
|
Residential mortgage
(1)
|
|
|
3,906
|
|
|
|
3,326
|
|
|
|
2,846
|
|
|
|
2,624
|
|
|
|
2,122
|
|
|
|
1,784
|
|
|
|
84.1
|
|
Other loans
(1)
|
|
|
406
|
|
|
|
377
|
|
|
|
371
|
|
|
|
386
|
|
|
|
381
|
|
|
|
25
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
12,389
|
|
|
|
12,003
|
|
|
|
11,939
|
|
|
|
11,897
|
|
|
|
11,130
|
|
|
|
1,259
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans and Leases
|
|
|
22,195
|
|
|
|
21,767
|
|
|
|
21,502
|
|
|
|
21,406
|
|
|
|
20,512
|
|
|
|
1,683
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(288
|
)
|
|
|
(310
|
)
|
|
|
(313
|
)
|
|
|
(350
|
)
|
|
|
(330
|
)
|
|
|
42
|
|
|
|
(12.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans and Leases
|
|
|
21,907
|
|
|
|
21,457
|
|
|
|
21,189
|
|
|
|
21,056
|
|
|
|
20,182
|
|
|
|
1,725
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets
|
|
|
27,737
|
|
|
|
27,557
|
|
|
|
26,979
|
|
|
|
26,426
|
|
|
|
25,622
|
|
|
|
2,115
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
800
|
|
|
|
977
|
|
|
|
1,166
|
|
|
|
1,355
|
|
|
|
1,565
|
|
|
|
(765
|
)
|
|
|
(48.9
|
)
|
Cash and due from banks
|
|
|
928
|
|
|
|
772
|
|
|
|
740
|
|
|
|
766
|
|
|
|
747
|
|
|
|
181
|
|
|
|
24.2
|
|
Intangible assets
|
|
|
216
|
|
|
|
216
|
|
|
|
217
|
|
|
|
217
|
|
|
|
218
|
|
|
|
(2
|
)
|
|
|
(0.9
|
)
|
All other assets
|
|
|
2,072
|
|
|
|
2,101
|
|
|
|
2,046
|
|
|
|
2,008
|
|
|
|
2,061
|
|
|
|
11
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
31,465
|
|
|
$
|
31,313
|
|
|
$
|
30,835
|
|
|
$
|
30,422
|
|
|
$
|
29,883
|
|
|
$
|
1,582
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
3,276
|
|
|
$
|
3,223
|
|
|
$
|
3,017
|
|
|
$
|
3,131
|
|
|
$
|
3,218
|
|
|
$
|
58
|
|
|
|
1.8
|
%
|
Interest bearing demand deposits
|
|
|
7,384
|
|
|
|
7,168
|
|
|
|
6,609
|
|
|
|
6,466
|
|
|
|
6,558
|
|
|
|
826
|
|
|
|
12.6
|
|
Savings deposits
|
|
|
2,841
|
|
|
|
2,839
|
|
|
|
2,819
|
|
|
|
2,824
|
|
|
|
2,808
|
|
|
|
33
|
|
|
|
1.2
|
|
Retail certificates of deposit
|
|
|
2,414
|
|
|
|
2,400
|
|
|
|
2,399
|
|
|
|
2,492
|
|
|
|
2,561
|
|
|
|
(147
|
)
|
|
|
(5.7
|
)
|
Other domestic time deposits
|
|
|
595
|
|
|
|
600
|
|
|
|
637
|
|
|
|
631
|
|
|
|
656
|
|
|
|
(61
|
)
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Deposits
|
|
|
16,510
|
|
|
|
16,230
|
|
|
|
15,481
|
|
|
|
15,544
|
|
|
|
15,801
|
|
|
|
709
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic time deposits of $100,000 or more
|
|
|
886
|
|
|
|
795
|
|
|
|
788
|
|
|
|
828
|
|
|
|
803
|
|
|
|
83
|
|
|
|
10.3
|
|
Brokered time deposits and negotiable CDs
|
|
|
1,755
|
|
|
|
1,737
|
|
|
|
1,907
|
|
|
|
1,851
|
|
|
|
1,421
|
|
|
|
334
|
|
|
|
23.5
|
|
Foreign time deposits
|
|
|
476
|
|
|
|
542
|
|
|
|
549
|
|
|
|
522
|
|
|
|
536
|
|
|
|
(60
|
)
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
19,627
|
|
|
|
19,304
|
|
|
|
18,725
|
|
|
|
18,745
|
|
|
|
18,561
|
|
|
|
1,066
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
1,342
|
|
|
|
1,396
|
|
|
|
1,603
|
|
|
|
1,433
|
|
|
|
1,393
|
|
|
|
(51
|
)
|
|
|
(3.7
|
)
|
Federal Home Loan Bank advances
|
|
|
1,270
|
|
|
|
1,270
|
|
|
|
1,273
|
|
|
|
1,273
|
|
|
|
1,273
|
|
|
|
(3
|
)
|
|
|
(0.2
|
)
|
Subordinated notes and other long-term
debt,
including preferred capital securities
|
|
|
5,244
|
|
|
|
5,623
|
|
|
|
5,557
|
|
|
|
5,432
|
|
|
|
5,197
|
|
|
|
47
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
|
24,207
|
|
|
|
24,370
|
|
|
|
24,141
|
|
|
|
23,752
|
|
|
|
23,206
|
|
|
|
1,001
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
1,570
|
|
|
|
1,397
|
|
|
|
1,399
|
|
|
|
1,311
|
|
|
|
1,220
|
|
|
|
350
|
|
|
|
28.7
|
|
Shareholders equity
|
|
|
2,412
|
|
|
|
2,323
|
|
|
|
2,278
|
|
|
|
2,228
|
|
|
|
2,239
|
|
|
|
173
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
31,465
|
|
|
$
|
31,313
|
|
|
$
|
30,835
|
|
|
$
|
30,422
|
|
|
$
|
29,883
|
|
|
$
|
1,582
|
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. - Not Meaningful
(1)
Consumer loans that are secured by a first mortgage on
residential property are presented as residential mortgage
loans. Consumer loans that are secured by a junior mortgage on
residential property are presented as Home equity loans
Reclassification of prior period balances have been made to conform
with this presentation.
28
Table 5 - Consolidated
Quarterly Net Interest Margin Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rates
(2)
|
|
|
2004
|
|
2003
|
Fully Taxable Equivalent Basis
(1)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
|
0.91
|
%
|
|
|
1.05
|
%
|
|
|
0.71
|
%
|
|
|
0.60
|
%
|
|
|
0.51
|
%
|
Trading account securities
|
|
|
4.44
|
|
|
|
3.02
|
|
|
|
3.98
|
|
|
|
2.39
|
|
|
|
4.70
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
1.53
|
|
|
|
1.21
|
|
|
|
1.41
|
|
|
|
1.30
|
|
|
|
1.92
|
|
Loans held for sale
|
|
|
5.25
|
|
|
|
5.17
|
|
|
|
5.33
|
|
|
|
5.31
|
|
|
|
5.16
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
3.83
|
|
|
|
3.83
|
|
|
|
4.06
|
|
|
|
4.24
|
|
|
|
4.23
|
|
Tax exempt
|
|
|
7.06
|
|
|
|
7.07
|
|
|
|
6.88
|
|
|
|
6.91
|
|
|
|
6.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities
|
|
|
4.10
|
|
|
|
4.09
|
|
|
|
4.30
|
|
|
|
4.49
|
|
|
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
4.63
|
|
|
|
4.25
|
|
|
|
4.49
|
|
|
|
4.82
|
|
|
|
4.84
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
4.11
|
|
|
|
3.70
|
|
|
|
3.68
|
|
|
|
4.24
|
|
|
|
4.17
|
|
Commercial
|
|
|
4.76
|
|
|
|
4.57
|
|
|
|
4.70
|
|
|
|
4.99
|
|
|
|
5.22
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
7.65
|
|
|
|
7.20
|
|
|
|
6.93
|
|
|
|
6.90
|
|
|
|
7.19
|
|
Automobile leases
|
|
|
5.02
|
|
|
|
5.06
|
|
|
|
4.94
|
|
|
|
4.98
|
|
|
|
4.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile Loans and Leases
|
|
|
6.21
|
|
|
|
6.17
|
|
|
|
6.14
|
|
|
|
6.25
|
|
|
|
6.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
(3)
|
|
|
4.72
|
|
|
|
4.73
|
|
|
|
4.47
|
|
|
|
4.75
|
|
|
|
5.03
|
|
Residential
mortgage
(3)
|
|
|
5.52
|
|
|
|
5.36
|
|
|
|
5.16
|
|
|
|
5.24
|
|
|
|
5.34
|
|
Other loans
(3)
|
|
|
6.89
|
|
|
|
6.33
|
|
|
|
5.62
|
|
|
|
8.15
|
|
|
|
7.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
5.54
|
|
|
|
5.49
|
|
|
|
5.52
|
|
|
|
5.64
|
|
|
|
5.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans and Leases
|
|
|
5.12
|
|
|
|
4.95
|
|
|
|
5.04
|
|
|
|
5.26
|
|
|
|
5.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets
|
|
|
4.89
|
%
|
|
|
4.76
|
%
|
|
|
4.89
|
%
|
|
|
5.11
|
%
|
|
|
5.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
(4)
|
|
|
1.06
|
%
|
|
|
0.94
|
%
|
|
|
0.88
|
%
|
|
|
0.91
|
%
|
|
|
1.04
|
%
|
Savings deposits
|
|
|
0.83
|
|
|
|
0.82
|
|
|
|
0.94
|
|
|
|
1.22
|
|
|
|
1.35
|
|
Retail certificates of deposit
|
|
|
3.32
|
|
|
|
3.27
|
|
|
|
3.47
|
|
|
|
3.54
|
|
|
|
3.51
|
|
Other domestic time deposits
|
|
|
3.22
|
|
|
|
3.19
|
|
|
|
3.48
|
|
|
|
3.69
|
|
|
|
3.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Deposits
|
|
|
1.52
|
|
|
|
1.45
|
|
|
|
1.53
|
|
|
|
1.65
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic time deposits of $100,000 or more
|
|
|
2.40
|
|
|
|
2.37
|
|
|
|
2.14
|
|
|
|
2.37
|
|
|
|
2.32
|
|
Brokered time deposits and negotiable CDs
|
|
|
1.84
|
|
|
|
1.57
|
|
|
|
1.51
|
|
|
|
1.52
|
|
|
|
1.63
|
|
Foreign time deposits
|
|
|
0.83
|
|
|
|
0.76
|
|
|
|
0.72
|
|
|
|
0.75
|
|
|
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
1.58
|
|
|
|
1.48
|
|
|
|
1.53
|
|
|
|
1.64
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
0.92
|
|
|
|
0.80
|
|
|
|
0.83
|
|
|
|
0.78
|
|
|
|
0.85
|
|
Federal Home Loan Bank advances
|
|
|
2.60
|
|
|
|
2.52
|
|
|
|
2.50
|
|
|
|
2.24
|
|
|
|
1.81
|
|
Subordinated notes and other long-term debt,
including preferred capital securities
|
|
|
2.62
|
|
|
|
2.24
|
|
|
|
2.33
|
|
|
|
2.63
|
|
|
|
2.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
|
1.82
|
%
|
|
|
1.66
|
%
|
|
|
1.71
|
%
|
|
|
1.85
|
%
|
|
|
1.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
3.07
|
%
|
|
|
3.10
|
%
|
|
|
3.18
|
%
|
|
|
3.26
|
%
|
|
|
3.30
|
%
|
Impact of non-interest bearing funds on margin
|
|
|
0.23
|
|
|
|
0.19
|
|
|
|
0.18
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
3.30
|
%
|
|
|
3.29
|
%
|
|
|
3.36
|
%
|
|
|
3.42
|
%
|
|
|
3.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 1 for the FTE adjustment.
|
|
(2)
|
|
Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees.
|
|
(3)
|
|
Consumer loans that are secured by a first mortgage on
residential property are presented as residential mortgage loans. Consumer loans that are secured by a junior mortgage on residential property are presented as Home equity loans. Reclassification of prior period balances have been made to conform with this presentation.
|
|
(4)
|
|
The 2004 second quarter calculation has been corrected to conform to other periods presented.
|
29
2004 Third Quarter versus 2004 Second Quarter
Compared with the 2004 second quarter, fully taxable equivalent net
interest income increased $4.4 million, or 2%, reflecting the favorable impact
of a 1% increase in average earning assets and a one basis point increase in
the net interest margin to 3.30% from 3.29%.
Compared with the second quarter, average total loans and leases increased
$0.4 billion, or 2%, with the growth rate mitigated by a $0.5 billion, or 21%,
decline in average automobile loans due to the second quarter ($512 million)
and third quarter ($153 million) sales of automobile loans. Growth in
mortgage-related consumer loans remained strong with average residential
mortgages up $0.6 billion, or 17%, and average home equity loans up $0.1
billion, or 4%. Total average C&I and CRE loans increased slightly, primarily
reflecting a $63 million, or 3%, increase in small business C&I and CRE loans.
As discussed above, middle-market C&I and CRE loan balances were impacted by
the $282 million loan reclassification on June 30, 2004. Adjusting for this
reclassification, third quarter average middle-market C&I and CRE loans were
essentially flat.
Compared with the second quarter, average investment securities declined
$0.5 billion, or 10%.
Compared with the 2004 second quarter, average total core deposits
increased $0.3 billion, or 2%, reflecting growth in interest bearing demand
deposits, up $0.2 billion, or 3%, as well as non-interest bearing deposits, up
$0.1 billion, or 2%.
2004 First Nine Months versus 2003 First Nine Months
Fully taxable equivalent net interest income for the first nine months of
2004 increased $49.7 million, or 8%, from the comparable year-ago period,
reflecting the favorable impact of a 14% increase in average earning assets,
partially offset by a 21 basis point, or an effective 6%, decline in the net
interest margin. The fully taxable equivalent net interest margin decreased to
3.31% from 3.52%, reflecting the impact of lower rates and the strategic
repositioning of portfolios to reduce automobile loans and increase the
relative proportion of lower-rate, and lower-risk, residential real
estate-related loans and investment securities.
Average total loans and leases increased $2.3 billion, or 12%, from the
first nine months of 2003 due primarily to a $2.0 billion, or 19%, increase in
average consumer loans. Contributing to the consumer loan growth was a $1.4
billion, or 72%, increase in average residential mortgages and a $0.5 billion,
or 15%, increase in average home equity loans. Average total automobile loans
and leases increased $0.1 billion, or 1%. This growth from the year-ago,
nine-month period reflected the positive impact of underlying new automobile
loan originations, the 2003 third quarter consolidation of a $1.0 billion
automobile loan securitization trust, and the rapid growth in direct financing
leases due to the migration from operating lease assets, which are no longer
being originated. Partially offsetting these positive impacts was the sale of
automobile loans over this period.
Average total C&I and CRE loans in the first nine months of 2004 increased
$0.3 billion, or 3%, from the comparable year-ago period reflecting an 11%
increase in small business C&I and CRE loans, and a 11% increase in
middle-market CRE loans. Average middle-market C&I loans were down 5% from the
year-ago period and reflected both weak demand and the impact from continued
strategies to specifically lower exposure to large individual commercial
credits, including shared national credits.
Average investment securities increased $1.4 billion, or 38%, from the
year-ago nine-month period primarily reflecting the investment of a portion of
the proceeds from the automobile loan sales.
Average total core deposits in the first nine months of 2004 were $16.1
billion, up $0.7 billion, or 4%, from the comparable year-ago period. This
growth primarily reflected a $1.0 billion, or 16%, increase in interest bearing
demand deposits, primarily money market accounts, partially offset by a $0.4
billion, or 13%, decline in retail CDs.
Table 6 reflects average balance sheets and rates earned and paid on
interest-earning assets and interest-bearing liabilities, respectively, for the
first nine-month periods of 2004 and 2003:
30
Table 6 - Condensed
Consolidated YTD Average Balance Sheets and Net Interest Margin
Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD Average Balances
|
|
YTD Average Rates
(2)
|
(in millions)
|
|
Nine Months Ending Sept 30,
|
|
2004 vs. 2003
|
|
Nine Months Ending Sept 30,
|
Fully Tax Equivalent Basis
(1)
|
|
2004
|
|
2003
|
|
Amount
|
|
%
|
|
2004
|
|
2003
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
$
|
67
|
|
|
$
|
58
|
|
|
$
|
9
|
|
|
|
15.5
|
|
|
|
0.88
|
%
|
|
|
1.53
|
%
|
Trading account securities
|
|
|
64
|
|
|
|
16
|
|
|
|
48
|
|
|
|
N.M.
|
|
|
|
4.17
|
|
|
|
4.41
|
|
Federal funds sold and securities purchased
under resale agreements
|
|
|
193
|
|
|
|
76
|
|
|
|
117
|
|
|
|
N.M.
|
|
|
|
1.42
|
|
|
|
2.05
|
|
Loans held for sale
|
|
|
248
|
|
|
|
654
|
|
|
|
(406
|
)
|
|
|
(62.1
|
)
|
|
|
5.24
|
|
|
|
5.32
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,615
|
|
|
|
3,350
|
|
|
|
1,265
|
|
|
|
37.8
|
|
|
|
3.91
|
|
|
|
4.63
|
|
Tax exempt
|
|
|
415
|
|
|
|
304
|
|
|
|
111
|
|
|
|
36.5
|
|
|
|
7.00
|
|
|
|
7.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities
|
|
|
5,030
|
|
|
|
3,654
|
|
|
|
1,376
|
|
|
|
37.7
|
|
|
|
4.17
|
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
5,413
|
|
|
|
5,542
|
|
|
|
(129
|
)
|
|
|
(2.3
|
)
|
|
|
4.45
|
|
|
|
5.17
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
1,408
|
|
|
|
1,229
|
|
|
|
179
|
|
|
|
14.6
|
|
|
|
3.85
|
|
|
|
4.22
|
|
Commercial
|
|
|
2,891
|
|
|
|
2,644
|
|
|
|
247
|
|
|
|
9.3
|
|
|
|
4.67
|
|
|
|
5.31
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
2,410
|
|
|
|
3,170
|
|
|
|
(760
|
)
|
|
|
(24.0
|
)
|
|
|
7.20
|
|
|
|
7.56
|
|
Automobile leases
|
|
|
2,126
|
|
|
|
1,304
|
|
|
|
822
|
|
|
|
63.0
|
|
|
|
5.00
|
|
|
|
5.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
4,536
|
|
|
|
4,474
|
|
|
|
62
|
|
|
|
1.4
|
|
|
|
6.17
|
|
|
|
6.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
(3)
|
|
|
3,830
|
|
|
|
3,337
|
|
|
|
493
|
|
|
|
14.8
|
|
|
|
4.65
|
|
|
|
4.97
|
|
Residential mortgage
(3)
|
|
|
3,361
|
|
|
|
1,958
|
|
|
|
1,403
|
|
|
|
71.7
|
|
|
|
5.36
|
|
|
|
5.64
|
|
Other loans
(3)
|
|
|
384
|
|
|
|
383
|
|
|
|
1
|
|
|
|
0.3
|
|
|
|
6.30
|
|
|
|
7.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
12,111
|
|
|
|
10,152
|
|
|
|
1,959
|
|
|
|
19.3
|
|
|
|
5.52
|
|
|
|
6.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans and Leases
|
|
|
21,823
|
|
|
|
19,567
|
|
|
|
2,256
|
|
|
|
11.5
|
|
|
|
5.03
|
|
|
|
5.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(314
|
)
|
|
|
(350
|
)
|
|
|
36
|
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and leases
|
|
|
21,509
|
|
|
|
19,217
|
|
|
|
2,292
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
27,425
|
|
|
|
24,025
|
|
|
|
3,400
|
|
|
|
14.2
|
|
|
|
4.84
|
%
|
|
|
5.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
980
|
|
|
|
1,812
|
|
|
|
(832
|
)
|
|
|
(45.9
|
)
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
814
|
|
|
|
740
|
|
|
|
74
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
216
|
|
|
|
218
|
|
|
|
(2
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
All other assets
|
|
|
2,074
|
|
|
|
2,010
|
|
|
|
64
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
31,195
|
|
|
$
|
28,455
|
|
|
$
|
2,740
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
3,172
|
|
|
$
|
3,063
|
|
|
$
|
109
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
|
7,055
|
|
|
|
6,100
|
|
|
|
955
|
|
|
|
15.7
|
|
|
|
0.96
|
%
|
|
|
1.28
|
%
|
Savings deposits
|
|
|
2,833
|
|
|
|
2,795
|
|
|
|
38
|
|
|
|
1.4
|
|
|
|
0.86
|
|
|
|
1.58
|
|
Retail certificates of deposit
|
|
|
2,404
|
|
|
|
2,773
|
|
|
|
(369
|
)
|
|
|
(13.3
|
)
|
|
|
3.35
|
|
|
|
3.72
|
|
Other domestic time deposits
|
|
|
611
|
|
|
|
670
|
|
|
|
(59
|
)
|
|
|
(8.8
|
)
|
|
|
3.30
|
|
|
|
3.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core deposits
|
|
|
16,075
|
|
|
|
15,401
|
|
|
|
674
|
|
|
|
4.4
|
|
|
|
1.50
|
|
|
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic time deposits of $100,000 or more
|
|
|
823
|
|
|
|
793
|
|
|
|
30
|
|
|
|
3.8
|
|
|
|
2.31
|
|
|
|
2.54
|
|
Brokered time deposits and negotiable CDs
|
|
|
1,800
|
|
|
|
1,274
|
|
|
|
526
|
|
|
|
41.3
|
|
|
|
1.64
|
|
|
|
1.79
|
|
Foreign time deposits
|
|
|
522
|
|
|
|
492
|
|
|
|
30
|
|
|
|
6.1
|
|
|
|
0.77
|
|
|
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
19,220
|
|
|
|
17,960
|
|
|
|
1,260
|
|
|
|
7.0
|
|
|
|
1.53
|
|
|
|
2.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
1,447
|
|
|
|
1,656
|
|
|
|
(209
|
)
|
|
|
(12.6
|
)
|
|
|
0.85
|
|
|
|
1.04
|
|
Federal Home Loan Bank advances
|
|
|
1,271
|
|
|
|
1,253
|
|
|
|
18
|
|
|
|
1.4
|
|
|
|
2.54
|
|
|
|
1.80
|
|
Subordinated notes and other long-term debt,
including preferred capital securities
|
|
|
5,474
|
|
|
|
4,265
|
|
|
|
1,209
|
|
|
|
28.3
|
|
|
|
2.39
|
|
|
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
24,240
|
|
|
|
22,071
|
|
|
|
2,169
|
|
|
|
9.8
|
|
|
|
1.74
|
%
|
|
|
2.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other liabilities
|
|
|
1,445
|
|
|
|
1,137
|
|
|
|
308
|
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
2,338
|
|
|
|
2,184
|
|
|
|
154
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
31,195
|
|
|
$
|
28,455
|
|
|
$
|
2,740
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.10
|
%
|
|
|
3.36
|
%
|
Impact of non-interest bearing funds on
margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.21
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.31
|
%
|
|
|
3.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Fully taxable equivalent (FTE) yields are calculated
assuming a 35% tax rate. See Table 2 for the FTE adjustment.
(2)
Loan and lease and deposit average rates include
impact of applicable derivatives and non-deferrable fees.
(3)
Consumer loans that are secured by a first mortgage on
residential property are presented as residential mortgage
loans. Consumer loans that are secured by a junior mortgage on
residential property are presented as Home equity loans.
Reclassification of prior period balances have been made to conform
with this presentation.
31
Provision for Credit Losses
The provision for credit losses is the expense necessary to maintain the
ALLL and the allowance for unfunded loan commitments (AULC) at levels adequate
to absorb Managements estimate of inherent losses in the total loan and direct
financing lease portfolio, unfunded loan commitments, and letters of credit.
Taken into consideration are such factors as current period net charge-offs
that are charged against these allowances, current period loan and lease growth
and any related estimate of likely losses associated with that growth based on
historical experience, the current economic outlook, and the anticipated impact
on credit quality of existing loans and leases, unfunded commitments and
letters of credit (see Allowances for Credit Losses for additional discussion
and Table 14).
The provision for credit losses in the 2004 third quarter was $11.8
million, a $39.8 million reduction from the year-ago quarter and a $6.8 million
increase from the 2004 second quarter. The reduction from the year-ago quarter
reflected overall improved portfolio quality performance, as well as an
improved economic outlook, only partially offset by provision expense related
to loan growth. The increase in provision for credit losses from the 2004
second quarter reflected the fact that the 2004 second quarter provision
benefited from a $9.7 million recovery on a single C&I credit that had been
charged-off in the 2002 fourth quarter. Underlying credit quality trends
between the 2004 second and third quarter continued to improve. As previously
disclosed, effective January 1, 2004, the company adopted a more quantitative
approach to calculating the economic reserve component of the ALLL, making this
component more responsive to changes in economic conditions. This change,
combined with the existing quantitative approach for determining the
transaction reserve component, as well as changes to the specific reserve
component, will result in more volatility in the total ALLL and corresponding
provision for credit losses (see Credit Risk for additional discussion).
The provision for credit losses in the first nine months of 2004 was $42.4
million, a $95.2 million, or 69%, decline from the comparable year-ago period.
This reduction reflected the same factors impacting third quarter
year-over-year performance.
32
Non-Interest Income
Table 7 reflects non-interest income detail for each of the past five
quarters, and the first nine-months of 2004 and 2003:
Table 7 Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
3Q04 vs. 3Q03
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Amount
|
|
Percent
|
Service charges on deposit accounts
|
|
$
|
43,935
|
|
|
$
|
43,596
|
|
|
$
|
41,837
|
|
|
$
|
44,763
|
|
|
$
|
42,294
|
|
|
$
|
1,641
|
|
|
|
3.9
|
%
|
Trust services
|
|
|
17,064
|
|
|
|
16,708
|
|
|
|
16,323
|
|
|
|
15,793
|
|
|
|
15,365
|
|
|
|
1,699
|
|
|
|
11.1
|
|
Brokerage and insurance
|
|
|
13,200
|
|
|
|
13,523
|
|
|
|
15,197
|
|
|
|
14,344
|
|
|
|
13,807
|
|
|
|
(607
|
)
|
|
|
(4.4
|
)
|
Mortgage banking
|
|
|
4,448
|
|
|
|
23,322
|
|
|
|
(4,296
|
)
|
|
|
9,677
|
|
|
|
30,193
|
|
|
|
(25,745
|
)
|
|
|
(85.3
|
)
|
Bank owned life insurance
|
|
|
10,019
|
|
|
|
11,309
|
|
|
|
10,485
|
|
|
|
10,410
|
|
|
|
10,438
|
|
|
|
(419
|
)
|
|
|
(4.0
|
)
|
Gain on sale of automobile loans
|
|
|
312
|
|
|
|
4,890
|
|
|
|
9,004
|
|
|
|
16,288
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
Gain on sale of branch offices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,112
|
|
|
|
(13,112
|
)
|
|
|
N.M.
|
|
Other service charges and fees
|
|
|
10,799
|
|
|
|
10,645
|
|
|
|
9,513
|
|
|
|
9,237
|
|
|
|
10,499
|
|
|
|
300
|
|
|
|
2.9
|
|
Securities gains (losses)
|
|
|
7,803
|
|
|
|
(9,230
|
)
|
|
|
15,090
|
|
|
|
1,280
|
|
|
|
(4,107
|
)
|
|
|
11,910
|
|
|
|
N.M.
|
|
Other
|
|
|
17,899
|
|
|
|
24,659
|
|
|
|
25,619
|
|
|
|
19,411
|
|
|
|
23,543
|
|
|
|
(5,644
|
)
|
|
|
(24.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total before operating lease income
|
|
|
125,479
|
|
|
|
139,422
|
|
|
|
138,772
|
|
|
|
141,203
|
|
|
|
155,144
|
|
|
|
(29,665
|
)
|
|
|
(19.1
|
)
|
Operating lease income
|
|
|
64,412
|
|
|
|
78,706
|
|
|
|
88,867
|
|
|
|
105,307
|
|
|
|
117,624
|
|
|
|
(53,212
|
)
|
|
|
(45.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
$
|
189,891
|
|
|
$
|
218,128
|
|
|
$
|
227,639
|
|
|
$
|
246,510
|
|
|
$
|
272,768
|
|
|
$
|
(82,877
|
)
|
|
|
(30.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ending
|
|
|
|
|
September 30,
|
|
2004 vs. 2003
|
(in thousands)
|
|
2004
|
|
2003
|
|
Amount
|
|
Percent
|
Service charges on deposit accounts
|
|
$
|
129,368
|
|
|
$
|
123,077
|
|
|
$
|
6,291
|
|
|
|
5.1
|
%
|
Trust services
|
|
|
50,095
|
|
|
|
45,856
|
|
|
|
4,239
|
|
|
|
9.2
|
|
Brokerage and insurance
|
|
|
41,920
|
|
|
|
43,500
|
|
|
|
(1,580
|
)
|
|
|
(3.6
|
)
|
Mortgage banking
|
|
|
23,474
|
|
|
|
48,503
|
|
|
|
(25,029
|
)
|
|
|
(51.6
|
)
|
Bank owned life insurance
|
|
|
31,813
|
|
|
|
32,618
|
|
|
|
(805
|
)
|
|
|
(2.5
|
)
|
Gain on sale of automobile loans
|
|
|
14,206
|
|
|
|
23,751
|
|
|
|
(9,545
|
)
|
|
|
(40.2
|
)
|
Gain on sale of branch offices
|
|
|
|
|
|
|
13,112
|
|
|
|
(13,112
|
)
|
|
|
N.M.
|
|
Other service charges and fees
|
|
|
30,957
|
|
|
|
32,209
|
|
|
|
(1,252
|
)
|
|
|
(3.9
|
)
|
Securities gains (losses)
|
|
|
13,663
|
|
|
|
3,978
|
|
|
|
9,685
|
|
|
|
N.M.
|
|
Other
|
|
|
68,177
|
|
|
|
71,648
|
|
|
|
(3,471
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total before operating lease income
|
|
|
403,673
|
|
|
|
438,252
|
|
|
|
(34,579
|
)
|
|
|
(7.9
|
)
|
Operating lease income
|
|
|
231,985
|
|
|
|
384,391
|
|
|
|
(152,406
|
)
|
|
|
(39.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
$
|
635,658
|
|
|
$
|
822,643
|
|
|
$
|
(186,985
|
)
|
|
|
(22.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful.
2004 Third Quarter versus 2003 Third Quarter
Non-interest income decreased $82.9 million, or 30%, from the year-ago
quarter. Comparisons with prior-period results are heavily influenced by the
decline in operating leases and related operating lease income. These trends
are expected to continue as all automobile leases originated since April 2002
are direct financing leases with income reflected in net interest income, not
non-interest income. Reflecting the run-off of the operating lease portfolio,
operating lease income declined $53.2 million, or 45%, from the 2003 third
quarter. Excluding operating lease income, non-interest income decreased $29.7
million, or 19%, from the year-ago quarter with the primary drivers being:
|
|
$25.7 million, or 85%, decrease in mortgage banking income. This
reflected a $21.9 million change in MSR temporary impairment valuations,
as the current quarter included a $4.1 million MSR temporary impairment
compared with a $17.8 million recovery of previously recorded MSR
temporary impairment recognized in the year-ago quarter. MSR valuations
are very sensitive to movements in interest rates. Excluding the MSR
temporary impairment valuation change between quarters, mortgage banking
income decreased $3.8 million, primarily reflecting lower secondary
marketing gains and lower origination volume.
|
|
|
$13.1 million gain on sale of branch offices in the year ago quarter
with no such gain in the current quarter.
|
|
|
$5.6 million, or 24%, decline in other income due to lower investment
banking income and the MSR-related trading loss. To offset the
volatility that results from recognizing temporary MSR valuation
changes, Huntington has used investment securities and, more recently,
other trading account assets, including forward commitments
|
33
and options. As none of these instruments qualify for hedge accounting,
the change in value of the trading account assets are reported as a
component of other income, whereas the gains (losses) from the sale of
securities that are available for sale are reported as investment
securities gains (losses).
Partially offset by:
|
|
$11.9 million increase in investment securities gains as the current
quarter reflected gains of $7.8 million compared with $4.1 million of
securities losses in the year-ago quarter.
|
|
|
$1.7 million, or 11%, increase in trust services income as a result
of higher personal trust fees, reflecting higher average asset values
and higher money market mutual fund fees.
|
|
|
$1.6 million, or 4%, increase in service charges on deposit accounts
due to higher service charges on personal accounts.
|
2004 Third Quarter versus 2004 Second Quarter
Compared with the 2004 second quarter, non-interest income declined $28.2
million, or 13%. This comparison is also heavily influenced by the decline in
operating lease income for the reasons noted above. Reflecting the run-off of
the operating lease portfolio, operating lease income declined $14.3 million,
or 18%, from the 2004 second quarter. Excluding operating lease income,
non-interest income decreased $13.9 million, or 10%, from the 2004 second
quarter with the primary drivers being:
|
|
$18.9 million, or 81%, decrease in mortgage banking income. This
reflected a $19.0 million change in MSR temporary impairment valuations,
as the current quarter included a $4.1 million MSR temporary impairment
compared with a $14.9 million recovery of previously recorded MSR
temporary impairment recognized in the second quarter. This increase in
MSR temporary impairment valuation between quarters reflected the
downward movement in mortgage interest rates in the third quarter. The
MSR temporary impairment valuation reserve at September 30, 2004 was
$5.5 million. Reflecting the decline in interest rates during the
quarter, the value of MSRs as a percent of mortgages serviced for others
was 1.13%, down from 1.21% at June 30, 2004.
|
|
|
$6.8 million, or 27%, decrease in other income reflecting the
MSR-related trading loss in the current quarter, as well as a decline in
investment banking and trading fee income.
|
|
|
$4.6 million decrease in gain on sale of automobile loans as the
current quarter reflected $0.3 million of gains, compared with $4.9
million of gains in the second quarter.
|
Partially offset by:
|
|
$17.0 million increase in securities gains (losses), with the current
quarter reflecting $7.8 million in securities gains, compared with $9.2
million of securities losses in the 2004 second quarter.
|
2004 First Nine Months versus 2003 First Nine Months
Non-interest income for the first nine months of 2004 declined $187.0
million, or 23%, from the comparable year-ago period. Comparisons with
prior-period results are heavily influenced by the decline in operating leases
and related operating lease income (see above discussion). Reflecting the
run-off of the operating lease portfolio, operating lease income for the first
nine months of 2004 declined $152.4 million, or 40%, from the comparable
year-ago period. Excluding operating lease income, non-interest income for the
first nine months of 2004 decreased $34.6 million, or 8%, from the comparable
year-ago period with the primary drivers being:
|
|
$25.0 million, or 52%, decline in mortgage banking income. This
reflected a $10.8 million change in MSR temporary impairment valuations,
as the current nine-month period included $0.6 million recovery of
previously recorded MSR temporary impairment compared with an $11.4
million recovery of previously recorded MSR temporary impairment in the
comparable year-ago period. The remainder of the decline primarily
reflected lower secondary marketing gains and lower origination volume.
|
|
|
$13.1 million gain on sale of branch offices in the year-ago
nine-month period with no such gain in the comparable
|
34
|
|
$9.5 million reduction in the gain on sale of automobile loans.
|
|
|
$3.5 million decline in other income, including a $2.3 million loss
on trading activity in the current year period to offset MSR temporary
valuation changes, as well as lower investment banking income.
|
Partially offset by:
|
|
$9.7 million increase in gains from the sale of investment securities
to offset MSR temporary valuation changes.
|
|
|
$6.3 million, or 5%, increase in service charges on deposit accounts.
|
|
|
$4.2 million, or 9%, increase in trust services.
|
35
Non-Interest Expense
Table 8 reflects non-interest expense detail for each of the last five
quarters and the first nine-month period for 2004 and 2003:
Table 8 - Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
3Q04 vs. 3Q03
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Amount
|
|
Percent
|
Personnel costs
|
|
$
|
121,729
|
|
|
$
|
119,715
|
|
|
$
|
121,624
|
|
|
$
|
115,762
|
|
|
$
|
113,170
|
|
|
$
|
8,559
|
|
|
|
7.6
|
%
|
Outside data processing and other services
|
|
|
17,527
|
|
|
|
17,563
|
|
|
|
18,462
|
|
|
|
15,957
|
|
|
|
17,478
|
|
|
|
49
|
|
|
|
0.3
|
|
Equipment
|
|
|
15,295
|
|
|
|
16,228
|
|
|
|
16,086
|
|
|
|
16,840
|
|
|
|
16,328
|
|
|
|
(1,033
|
)
|
|
|
(6.3
|
)
|
Net occupancy
|
|
|
16,838
|
|
|
|
16,258
|
|
|
|
16,763
|
|
|
|
14,925
|
|
|
|
15,570
|
|
|
|
1,268
|
|
|
|
8.1
|
|
Professional services
|
|
|
12,219
|
|
|
|
7,836
|
|
|
|
7,299
|
|
|
|
12,175
|
|
|
|
11,116
|
|
|
|
1,103
|
|
|
|
9.9
|
|
Marketing
|
|
|
5,000
|
|
|
|
8,069
|
|
|
|
7,839
|
|
|
|
6,895
|
|
|
|
5,515
|
|
|
|
(515
|
)
|
|
|
(9.3
|
)
|
Telecommunications
|
|
|
5,359
|
|
|
|
4,638
|
|
|
|
5,194
|
|
|
|
5,272
|
|
|
|
5,612
|
|
|
|
(253
|
)
|
|
|
(4.5
|
)
|
Printing and supplies
|
|
|
3,201
|
|
|
|
3,098
|
|
|
|
3,016
|
|
|
|
3,417
|
|
|
|
3,658
|
|
|
|
(457
|
)
|
|
|
(12.5
|
)
|
Amortization of intangible assets
|
|
|
204
|
|
|
|
204
|
|
|
|
204
|
|
|
|
204
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve releases
|
|
|
(1,151
|
)
|
|
|
|
|
|
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
(1,151
|
)
|
|
|
|
|
Other
|
|
|
22,317
|
|
|
|
25,981
|
|
|
|
18,457
|
|
|
|
25,510
|
|
|
|
18,397
|
|
|
|
3,920
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total before operating lease expense
|
|
|
218,538
|
|
|
|
219,590
|
|
|
|
214,944
|
|
|
|
231,856
|
|
|
|
207,048
|
|
|
|
11,490
|
|
|
|
5.5
|
|
Operating lease expense
|
|
|
54,885
|
|
|
|
62,563
|
|
|
|
70,710
|
|
|
|
85,609
|
|
|
|
93,134
|
|
|
|
(38,249
|
)
|
|
|
(41.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
$
|
273,423
|
|
|
$
|
282,153
|
|
|
$
|
285,654
|
|
|
$
|
317,465
|
|
|
$
|
300,182
|
|
|
$
|
(26,759
|
)
|
|
|
(8.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ending
|
|
|
|
|
September 30,
|
|
2004 vs. 2003
|
(in thousands)
|
|
2004
|
|
2003
|
|
Amount
|
|
Percent
|
Personnel costs
|
|
$
|
363,068
|
|
|
$
|
331,501
|
|
|
$
|
31,567
|
|
|
|
9.5
|
%
|
Outside data processing and other services
|
|
|
53,552
|
|
|
|
50,161
|
|
|
|
3,391
|
|
|
|
6.8
|
|
Equipment
|
|
|
47,609
|
|
|
|
49,081
|
|
|
|
(1,472
|
)
|
|
|
(3.0
|
)
|
Net occupancy
|
|
|
49,859
|
|
|
|
47,556
|
|
|
|
2,303
|
|
|
|
4.8
|
|
Professional services
|
|
|
27,354
|
|
|
|
30,273
|
|
|
|
(2,919
|
)
|
|
|
(9.6
|
)
|
Marketing
|
|
|
20,908
|
|
|
|
20,595
|
|
|
|
313
|
|
|
|
1.5
|
|
Telecommunications
|
|
|
15,191
|
|
|
|
16,707
|
|
|
|
(1,516
|
)
|
|
|
(9.1
|
)
|
Printing and supplies
|
|
|
9,315
|
|
|
|
9,592
|
|
|
|
(277
|
)
|
|
|
(2.9
|
)
|
Amortization of intangible assets
|
|
|
612
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
Restructuring reserve releases
|
|
|
(1,151
|
)
|
|
|
(6,315
|
)
|
|
|
5,164
|
|
|
|
(81.8
|
)
|
Other
|
|
|
66,755
|
|
|
|
55,270
|
|
|
|
11,485
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total before operating lease expense
|
|
|
653,072
|
|
|
|
605,033
|
|
|
|
48,039
|
|
|
|
7.9
|
|
Operating lease expense
|
|
|
188,158
|
|
|
|
307,661
|
|
|
|
(119,503
|
)
|
|
|
(38.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
$
|
841,230
|
|
|
$
|
912,694
|
|
|
$
|
(71,464
|
)
|
|
|
(7.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Third Quarter versus 2003 Third Quarter
Non-interest expense decreased $26.8 million, or 9%, from the year-ago
quarter. Comparisons with prior-period results are influenced by the decline
in operating lease expense as the operating lease portfolio continues to
run-off (see above operating lease income discussion). Excluding operating
lease expense, non-interest expense increased $11.5 million, or 6%, from the
year-ago quarter with the primary drivers being:
|
|
|
$8.6 million, or 8%, increase in personnel costs primarily reflecting
higher salaries and benefits expense, partially offset by lower sales
commissions due to weaker mortgage origination and capital market
activities.
|
|
|
|
|
$3.9 million, or 21%, increase in other expense reflecting higher
automobile lease residual value losses, as well as SEC-related expenses
and accruals.
|
|
|
|
|
$1.3 million, or 8%, increase in net occupancy expense.
|
|
|
|
|
$1.1 million, or 10%, increase in professional services including SEC-related expenses.
|
Partially offset by:
|
|
|
$1.2 million benefit from the release of restructuring reserves in the current quarter.
|
36
|
|
|
$1.0 million, or 6%, decline in equipment expense.
|
The current quarter included $1.8 million of current quarter expenses
related to Unizan integration planning and systems conversion. These expenses
were spread across various non-interest expense categories with no meaningful
impact on any single line item.
2004 Third Quarter versus 2004 Second Quarter
Compared with the 2004 second quarter, non-interest expense declined $8.7
million, or 3%. Comparisons with prior-period results are also heavily
influenced by the decline in operating lease expense. Operating lease expense
declined $7.7 million, or 12%, from the 2004 second quarter. Excluding
operating lease expense, non-interest expense decreased $1.1 million from the
second quarter with the primary drivers being:
|
|
|
$3.7 million, or 14%, decrease in other expense as the second quarter
included $5.8 million of costs related to investments in partnerships
generating tax benefits for the first half of 2004. The 2004 third
quarter other expense included automobile lease residual value losses,
as well as SEC-related expenses and accruals.
|
|
|
|
|
$3.1 million, or 38%, decrease in marketing expense due to lower advertising expenditures.
|
|
|
|
|
$1.2 million benefit from the release of restructuring reserves in the current quarter.
|
Partially offset by:
|
|
|
$4.4 million, or 56%, increase in professional services primarily reflecting SEC-related expenses.
|
|
|
|
|
$2.0 million, or 2%, increase in personnel costs.
|
2004 First Nine Months versus 2003 First Nine Months
Non-interest expense for the first nine months of 2004 declined $71.5
million, or 8%, from the comparable year-ago period. Comparisons with
prior-period results are influenced by the decline in operating lease expense
as the operating lease portfolio continues to run-off (see above operating
lease income discussion). Operating lease expense declined $119.5 million, or
39%, from the 2003 nine-month period.
Excluding operating lease expense, non-interest expense for the first nine
months of 2004 increased $48.0 million, or 8%, from the year-ago period with
the primary drivers being:
|
|
|
$31.6 million, or 10%, increase in personnel costs primarily
reflecting a $17.3 million, or 28%, increase in benefits expense and an
$17.0 million, or 8%, increase in salaries.
|
|
|
|
|
$11.5 million, or 21%, increase in other expense reflecting $5.8
million of costs related to investments in partnerships generating tax
benefits in the current nine-month period and to a lesser degree
accruals for pending litigation and SEC-related costs.
|
|
|
|
|
$5.2 million in restructuring reserve releases that lowered expenses
in the year-ago nine-month period.
|
37
Operating Lease Assets
Table 9 reflects operating lease assets performance detail for each of the
last five quarters, and the first nine-months of 2004 and 2003:
Table 9 - Operating Lease
Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
3Q04 vs. 3Q03
|
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Amount
|
|
Percent
|
Balance Sheet
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average operating lease assets
outstanding
|
|
$
|
800
|
|
|
$
|
977
|
|
|
$
|
1,166
|
|
|
$
|
1,355
|
|
|
$
|
1,565
|
|
|
$
|
(765
|
)
|
|
|
(49)
|
%
|
Income Statement
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
$
|
60,267
|
|
|
$
|
72,402
|
|
|
$
|
83,517
|
|
|
$
|
98,223
|
|
|
$
|
109,645
|
|
|
$
|
(49,378
|
)
|
|
|
(45)
|
%
|
Fees
|
|
|
2,965
|
|
|
|
4,838
|
|
|
|
3,543
|
|
|
|
5,204
|
|
|
|
5,372
|
|
|
|
(2,407
|
)
|
|
|
(44.8
|
)
|
Recoveries - early terminations
|
|
|
1,180
|
|
|
|
1,466
|
|
|
|
1,807
|
|
|
|
1,880
|
|
|
|
2,607
|
|
|
|
(1,427
|
)
|
|
|
(54.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Income
|
|
|
64,412
|
|
|
|
78,706
|
|
|
|
88,867
|
|
|
|
105,307
|
|
|
|
117,624
|
|
|
|
(53,212
|
)
|
|
|
(45.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and residual losses at
termination
|
|
|
49,917
|
|
|
|
57,412
|
|
|
|
63,823
|
|
|
|
76,768
|
|
|
|
83,112
|
|
|
|
(33,195
|
)
|
|
|
(39.9
|
)
|
Losses - early termination
|
|
|
4,968
|
|
|
|
5,151
|
|
|
|
6,887
|
|
|
|
8,841
|
|
|
|
10,022
|
|
|
|
(5,054
|
)
|
|
|
(50.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Expense
|
|
|
54,885
|
|
|
|
62,563
|
|
|
|
70,710
|
|
|
|
85,609
|
|
|
|
93,134
|
|
|
|
(38,249
|
)
|
|
|
(41.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings Contribution
|
|
$
|
9,527
|
|
|
$
|
16,143
|
|
|
$
|
18,157
|
|
|
$
|
19,698
|
|
|
$
|
24,490
|
|
|
$
|
(14,963
|
)
|
|
|
(61.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings ratios
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
|
30.1
|
%
|
|
|
29.6
|
%
|
|
|
28.7
|
%
|
|
|
29.0
|
%
|
|
|
28.0
|
%
|
|
|
2.1
|
%
|
|
|
7.5
|
%
|
Depreciation and residual losses at
termination
|
|
|
25.0
|
|
|
|
23.5
|
|
|
|
21.9
|
|
|
|
22.7
|
|
|
|
21.2
|
|
|
|
3.7
|
|
|
|
17.5
|
|
(1) As a percent of average operating lease assets, quarterly amounts annualized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
2004 vs. 2003
|
|
|
2004
|
|
2003
|
|
Amount
|
|
Percent
|
Balance Sheet
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average operating lease assets
outstanding
|
|
$
|
980
|
|
|
$
|
1,812
|
|
|
$
|
(831
|
)
|
|
|
(45.9
|
)%
|
Income Statement
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
$
|
216,186
|
|
|
$
|
360,421
|
|
|
$
|
(144,235
|
)
|
|
|
(40.0
|
)%
|
Fees
|
|
|
11,346
|
|
|
|
16,419
|
|
|
|
(5,073
|
)
|
|
|
(30.9
|
)
|
Recoveries - early terminations
|
|
|
4,453
|
|
|
|
7,551
|
|
|
|
(3,098
|
)
|
|
|
(41.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Income
|
|
|
231,985
|
|
|
|
384,391
|
|
|
|
(152,406
|
)
|
|
|
(39.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and residual losses at
termination
|
|
|
171,152
|
|
|
|
273,782
|
|
|
|
(102,630
|
)
|
|
|
(37.5
|
)
|
Losses - early termination
|
|
|
17,006
|
|
|
|
33,879
|
|
|
|
(16,873
|
)
|
|
|
(49.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Expense
|
|
|
188,158
|
|
|
|
307,661
|
|
|
|
(119,503
|
)
|
|
|
(38.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings Contribution
|
|
$
|
43,827
|
|
|
$
|
76,730
|
|
|
$
|
(32,903
|
)
|
|
|
(42.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings ratios
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rental income
|
|
|
29.4
|
%
|
|
|
26.5
|
%
|
|
|
2.9
|
%
|
|
|
10.8
|
%
|
Depreciation and residual losses at
termination
|
|
|
23.3
|
|
|
|
20.2
|
|
|
|
3.1
|
|
|
|
15.6
|
|
(1)
|
|
As a percent of average operating lease assets, quartlery amounts annualized.
|
38
Operating lease assets represent automobile leases originated before May
2002. This operating lease portfolio will run-off over time since all
automobile lease originations after April 2002 have been recorded as direct
financing leases and are reported in the automobile loan and lease category in
earning assets. As a result, the non-interest income and non-interest expenses
associated with the operating lease portfolio will also decline over time.
2004 Third Quarter versus 2003 Third Quarter and 2004 Second Quarter
Average operating lease assets in the 2004 third quarter were $0.8
billion, down $0.8 billion, or 49%, from the year-ago quarter and 18% from the
2004 second quarter.
Operating lease income, which totaled $64.4 million in the 2004 third
quarter, represented 34% of non-interest income in the quarter. Operating lease
income was down $53.2 million, or 45%, from the year-ago quarter and $14.3
million, or 18%, from the 2004 second quarter, reflecting the declines in
average operating leases. As no new operating leases have been originated
after April 2002, the operating lease asset balances will continue to decline
through both depreciation and lease terminations. Net rental income was down
45% and 17%, respectively, from the year-ago and 2004 second quarter. Fees
declined 45% from the year-ago quarter and 39% from the second quarter
reflecting the recognition of deferred fees resulting from higher than expected
prepayments of operating lease assets in the second quarter of this year.
Recoveries from early terminations declined 55% from the year-ago quarter and
20% from the second quarter.
Operating lease expense totaled $54.9 million, down $38.2 million, or 41%,
from the year-ago quarter and down $7.7 million, or 12%, from the 2004 second
quarter. These declines also reflected the fact that this portfolio is
decreasing over time as no new operating leases are being originated. The
decline in operating lease expense from the year-ago quarter was partially
offset by a $3.5 million increase in additional depreciation expense for the
estimated decline in residual values.
Losses on operating lease assets consist of residual losses at termination
and losses on early terminations. Residual losses arise if the ultimate value
or sales proceeds from the automobile are less than Black Book value, which
represents the insured amount under the companys residual value insurance
policies. This situation may occur due to excess wear-and-tear or excess
mileage not collected from the lessee. Losses on early terminations occur when
a lessee, due to credit or other reasons, turns in the automobile before the
end of the lease term. A loss is realized if the automobile is sold for a
value less than the net book value at the date of turn-in. Such losses are not
covered by the residual value insurance policies. To the extent the company is
successful in collecting any deficiency from the lessee, amounts received are
recorded as recoveries from early terminations.
Credit losses on operating lease assets are included in operating lease
expense and were $5.0 million in the current quarter, down from $10.0 million
in the year-ago quarter and $5.2 million in the second quarter. Recoveries on
operating lease assets are included in operating lease income and totaled $1.2
million, $2.6 million, and $1.5 million, for the same periods, respectively.
The ratio of operating lease asset credit losses to average operating lease
assets, net of recoveries, was an annualized 1.89% in the current quarter,
1.90% in the year-ago quarter, and 1.51% in the 2004 second quarter. As noted
in the non-interest income discussion above, the operating lease portfolio will
decline over time as no new operating lease assets have been generated since
April 2002.
On a quarterly basis, Management evaluates the amount of residual value
losses that it anticipates will result from the estimated fair value of a
leased vehicle being less than the residual value inherent in the lease. Fair
value includes estimated net proceeds from the sale of the leased vehicle plus
expected residual value insurance proceeds and amounts expected to be collected
from the lessee for excess mileage and other items that are billable under
terms of the lease contract. When estimating the amount of expected insurance
proceeds, Management takes into consideration policy caps that exist in two of
the three residual value insurance policies and whether it expects aggregate
claims under such policies to exceed these caps. Residual value losses
exceeding any insurance policy cap are reflected in higher depreciation expense
over the remaining life of the affected automobile lease. Also as part of its
quarterly analysis, Management evaluates automobile leases individually for
impairment.
Residual value losses on automobile leases booked prior to October 1,
2000, were covered by an insurance policy with a $120 million cap. During the
third quarter, residual value losses exceeded this cap a few months earlier
than anticipated due to higher than anticipated volume of turned in automobiles
and to a lesser degree, softness in the used car market. Total losses above
the cap are expected to be $18-$30 million, including $10 million already
recognized and reflected in additional accumulated depreciation. As a result,
the company anticipates that 2004 fourth quarter operating lease depreciation
will be $2-$3 million higher than the 2004 third quarter expense level, with
lesser amounts in quarters thereafter.
39
The residual value insurance policy covering automobile leases originated
between October 1, 2000 and April 30, 2002 contains a $50 million cap. At this
time, the company anticipates that total claims against this policy will be
$10-$18 million, well below the cap. To date, approximately $3 million of
claims have been filed on this policy. All automobile leases originated since
April 30, 2002, are covered under a policy that does not place a cap on losses.
This policy will cover leases originated through April 30, 2005.
2004 First Nine Months versus 2003 First Nine Months
Average operating lease assets in the first nine-months of 2004 were $1.0
billion, down $0.8 billion, or 46%, from the comparable year-ago period.
Operating lease income, which totaled $232.0 million in the first nine
months of 2004, represented 36% of non-interest income, and was down $152.4
million, or 40%, from the comparable year-ago period. Net rental income was
down $144.2 million, or 40%. Fees declined $5.1 million, or 31%, from the same
year-ago period. Recoveries from early terminations declined $3.1 million, or
41% from the year-ago period. Operating lease expense totaled $188.2 million,
down $119.5 million, or 39%, from the comparable year-ago period. The declines
in operating lease income and operating lease expense reflected the fact that
this portfolio is decreasing over time as no new operating leases are being
originated, and the same factors discussed above.
The ratio of operating lease asset credit losses to average operating
lease assets, net of recoveries, was an annualized 1.71% in the first nine
months of 2004, down from 1.94% in the comparable year-ago period.
Provision for Income Taxes
The provision for income taxes in the third quarter of 2004 was $38.3
million and represented an effective tax rate on income before taxes of 29.0%.
The provision for income taxes increased $1.0 million from the year-ago
quarter, due to a higher effective tax rate. The effective tax rates in the
second quarter of 2004 and the third quarter 2003 were 28.3% and 26.3%,
respectively. The higher effective tax rate in the 2004 third quarter
reflected a reduction in estimated 2004 tax benefits (credits) from a reduced
level of investments in partnerships and the recording of non-deductible
expenses.
For the first nine months of 2004, provision for income taxes was $116.5
million and represented an effective tax rate on income before taxes of 27.5%.
This represented an increase of $12.0 million from the same period in 2003, in
which the effective tax rate was 26.3%, reflecting higher pre-tax income.
Each quarter, taxes for the full year are estimated and year-to-date tax
accrual adjustments are made. Revisions to the full year estimate of accrued
taxes occur periodically due to changes in the tax rates, audit resolution with
taxing authorities, and newly enacted statutory, judicial, and regulatory
guidance. These changes, when they occur, affect accrued taxes and can result
in fluctuations in the quarterly effective tax rate.
In accordance with FAS 109,
Accounting for Income Taxes
, no deferred
income taxes are to be recorded when a company intends to permanently reinvest
their earnings from a foreign activity. As of September 30, 2004, the company
intended to permanently reinvest the earnings from its foreign asset
securitization activities of approximately $83.7 million.
Management expects the 2004 effective tax rate to remain below 30% as the
level of tax-exempt income, general business credits, and asset securitization
activities remain consistent with prior years.
40
CREDIT RISK
Credit risk is the risk of loss due to adverse changes in a borrowers
ability to meet its financial obligations under agreed upon terms. The company
is subject to credit risk in lending, trading, and investment activities. The
nature and degree of credit risk is a function of the types of transactions,
the structure of those transactions, and the parties involved. The majority of
the companys credit risk is associated with lending activities, as the
acceptance and management of credit risk is central to profitable lending.
Credit risk represents a limited portion of the total risks associated with the
investment portfolio and is incidental to trading activities. Credit risk is
mitigated through a combination of credit policies and processes and portfolio
diversification. These include origination/underwriting criteria, portfolio
monitoring processes, and effective problem asset management. There are very
specific and differing methodologies for managing credit risk for commercial
credits compared with consumer credits (see Credit Risk Management section of
the Companys 2003 Form 10-K for a complete discussion).
Loan and Lease Composition
Table 10 reflects period-end loan and lease portfolio mix by type of loan
or lease, as well as by business segment:
Table 10 - Loans and
Lease Portfolio Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
June 30, 2004
(1)
|
|
March 31, 2004
|
|
December 31, 2003
|
|
September 30, 2003
|
(in millions)
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
5,440
|
|
|
|
23.3
|
%
|
|
$
|
5,277
|
|
|
|
23.3
|
%
|
|
$
|
5,480
|
|
|
|
24.6
|
%
|
|
$
|
5,314
|
|
|
|
23.8
|
%
|
|
$
|
5,433
|
|
|
|
24.0
|
%
|
Commercial real estate
|
|
|
4,473
|
|
|
|
19.2
|
|
|
|
4,514
|
|
|
|
19.9
|
|
|
|
4,272
|
|
|
|
19.2
|
|
|
|
4,172
|
|
|
|
18.6
|
|
|
|
4,047
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
9,913
|
|
|
|
42.5
|
|
|
|
9,791
|
|
|
|
43.2
|
|
|
|
9,752
|
|
|
|
43.7
|
|
|
|
9,486
|
|
|
|
42.4
|
|
|
|
9,480
|
|
|
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
1,885
|
|
|
|
8.1
|
|
|
|
1,814
|
|
|
|
8.0
|
|
|
|
2,267
|
|
|
|
10.2
|
|
|
|
2,992
|
|
|
|
13.4
|
|
|
|
3,709
|
|
|
|
16.4
|
|
Automobile leases
|
|
|
2,317
|
|
|
|
9.9
|
|
|
|
2,185
|
|
|
|
9.6
|
|
|
|
2,066
|
|
|
|
9.3
|
|
|
|
1,902
|
|
|
|
8.5
|
|
|
|
1,688
|
|
|
|
7.4
|
|
Home equity
(2)
|
|
|
4,047
|
|
|
|
17.4
|
|
|
|
3,906
|
|
|
|
17.2
|
|
|
|
3,757
|
|
|
|
16.9
|
|
|
|
3,639
|
|
|
|
16.3
|
|
|
|
3,498
|
|
|
|
15.4
|
|
Residential mortgage
(2)
|
|
|
4,004
|
|
|
|
17.2
|
|
|
|
3,690
|
|
|
|
16.3
|
|
|
|
2,976
|
|
|
|
13.4
|
|
|
|
2,681
|
|
|
|
12.0
|
|
|
|
2,415
|
|
|
|
10.6
|
|
Other loans
(2)
|
|
|
422
|
|
|
|
1.8
|
|
|
|
389
|
|
|
|
1.7
|
|
|
|
375
|
|
|
|
1.7
|
|
|
|
375
|
|
|
|
1.7
|
|
|
|
383
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
12,675
|
|
|
|
54.4
|
|
|
|
11,984
|
|
|
|
52.9
|
|
|
|
11,441
|
|
|
|
51.3
|
|
|
|
11,589
|
|
|
|
51.8
|
|
|
|
11,693
|
|
|
|
51.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans and Direct Financing Leases
|
|
$
|
22,588
|
|
|
|
96.9
|
|
|
$
|
21,775
|
|
|
|
96.1
|
|
|
$
|
21,193
|
|
|
|
95.1
|
|
|
$
|
21,075
|
|
|
|
94.2
|
|
|
$
|
21,173
|
|
|
|
93.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets
|
|
|
717
|
|
|
|
3.1
|
|
|
|
889
|
|
|
|
3.9
|
|
|
|
1,071
|
|
|
|
4.8
|
|
|
|
1,260
|
|
|
|
5.6
|
|
|
|
1,455
|
|
|
|
6.4
|
|
Securitized loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
0.1
|
|
|
|
37
|
|
|
|
0.2
|
|
|
|
49
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Exposure
|
|
$
|
23,305
|
|
|
|
100.0
|
%
|
|
$
|
22,664
|
|
|
|
100.0
|
%
|
|
$
|
22,292
|
|
|
|
100.0
|
%
|
|
$
|
22,372
|
|
|
|
100.0
|
%
|
|
$
|
22,677
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Automoble Exposure
(3)
|
|
$
|
4,919
|
|
|
|
21.1
|
%
|
|
$
|
4,888
|
|
|
|
21.6
|
%
|
|
$
|
5,432
|
|
|
|
24.4
|
%
|
|
$
|
6,191
|
|
|
|
27.7
|
%
|
|
$
|
6,901
|
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Business Segment
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Ohio
|
|
$
|
5,944
|
|
|
|
25.5
|
%
|
|
$
|
5,652
|
|
|
|
24.9
|
%
|
|
$
|
4,988
|
|
|
|
22.4
|
%
|
|
$
|
4,652
|
|
|
|
20.8
|
%
|
|
$
|
4,491
|
|
|
|
19.8
|
%
|
Northern Ohio
|
|
|
2,809
|
|
|
|
12.1
|
|
|
|
2,694
|
|
|
|
11.9
|
|
|
|
2,681
|
|
|
|
12.0
|
|
|
|
2,579
|
|
|
|
11.5
|
|
|
|
2,639
|
|
|
|
11.6
|
|
Southern Ohio/Kentucky
|
|
|
1,826
|
|
|
|
7.8
|
|
|
|
1,759
|
|
|
|
7.8
|
|
|
|
1,703
|
|
|
|
7.6
|
|
|
|
1,677
|
|
|
|
7.5
|
|
|
|
1,623
|
|
|
|
7.2
|
|
West Michigan
|
|
|
2,236
|
|
|
|
9.6
|
|
|
|
2,216
|
|
|
|
9.8
|
|
|
|
2,155
|
|
|
|
9.7
|
|
|
|
2,077
|
|
|
|
9.3
|
|
|
|
2,028
|
|
|
|
8.9
|
|
East Michigan
|
|
|
1,388
|
|
|
|
6.0
|
|
|
|
1,359
|
|
|
|
6.0
|
|
|
|
1,341
|
|
|
|
6.0
|
|
|
|
1,268
|
|
|
|
5.7
|
|
|
|
1,306
|
|
|
|
5.8
|
|
West Virginia
|
|
|
866
|
|
|
|
3.7
|
|
|
|
811
|
|
|
|
3.6
|
|
|
|
808
|
|
|
|
3.6
|
|
|
|
802
|
|
|
|
3.6
|
|
|
|
802
|
|
|
|
3.5
|
|
Indiana
|
|
|
863
|
|
|
|
3.7
|
|
|
|
811
|
|
|
|
3.6
|
|
|
|
753
|
|
|
|
3.4
|
|
|
|
731
|
|
|
|
3.3
|
|
|
|
741
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Regional Banking
|
|
|
15,932
|
|
|
|
68.4
|
|
|
|
15,302
|
|
|
|
67.5
|
|
|
|
14,429
|
|
|
|
64.7
|
|
|
|
13,786
|
|
|
|
61.7
|
|
|
|
13,630
|
|
|
|
60.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer Sales
|
|
|
5,774
|
|
|
|
24.8
|
|
|
|
5,840
|
|
|
|
25.8
|
|
|
|
6,399
|
|
|
|
28.7
|
|
|
|
7,095
|
|
|
|
31.6
|
|
|
|
7,598
|
|
|
|
33.5
|
|
Private Financial Group
|
|
|
1,395
|
|
|
|
6.0
|
|
|
|
1,381
|
|
|
|
6.1
|
|
|
|
1,322
|
|
|
|
5.9
|
|
|
|
1,296
|
|
|
|
5.8
|
|
|
|
1,260
|
|
|
|
5.6
|
|
Treasury / Other
|
|
|
204
|
|
|
|
0.9
|
|
|
|
141
|
|
|
|
0.6
|
|
|
|
142
|
|
|
|
0.7
|
|
|
|
195
|
|
|
|
0.9
|
|
|
|
189
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Exposure
|
|
$
|
23,305
|
|
|
|
100.0
|
%
|
|
$
|
22,664
|
|
|
|
100.0
|
%
|
|
$
|
22,292
|
|
|
|
100.0
|
%
|
|
$
|
22,372
|
|
|
|
100.0
|
%
|
|
$
|
22,677
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Effective June 30, 2004, $282 million of commercial and industrial loans were reclassified to commercial real estate to conform to the classification of these loans with the presentation of similar loans.
|
|
(2)
|
|
Consumer loans that are secured by a first mortgage on residential property are presented as residential mortgage loans. Consumer loans that are secured by a junior mortgage on residential property are presented
as Home equity loans. Reclassification of prior period balances have been made to conform with this presentation.
|
|
(3)
|
|
Sum of automobile loans and leases, operating lease assets, and securitized loans.
|
|
(4)
|
|
Prior period amounts have been reclassified to conform to the current period business segment structure.
|
During 2004, the composition of the loan and lease portfolio changed such
that lower credit risk home equity loans and residential mortgages each
represented 17% of total credit exposure at September 30, 2004, up from 15% and
11%, respectively, a year earlier. Conversely, C&I loans have declined from
24% a year ago to 23% at September 30, 2004, reflecting, in part, strategies to
exit large, individual commercial credits, including out-of-footprint shared
national credits.
41
At the beginning of the 2004 second quarter, the criteria for categorizing
commercial loans as either C&I loans or CRE loans was clarified. The new
criteria are based on the purpose of the loan. Previously, the categorization
was based on the nature of the collateral securing, or partially securing, the
loan. Under this new methodology, as new loans are originated or existing
loans renewed, loans secured by owner-occupied real estate are categorized as
C&I loans (previously CRE loans) and unsecured loans for the purpose of
developing real estate are categorized as CRE loans (previously C&I loans).
As a result of this change, $282 million in C&I loans were reclassified to CRE
loans effective June 30, 2004. Prior periods were not reclassified. This
change had no impact on the underlying credit quality of total commercial
loans. However, it did increase average reported CRE loans in the 2004 third
quarter by $282 million, with an equal decrease in average reported C&I loans.
The company also has a portfolio of automobile operating lease assets.
Although these assets are reflected on the balance sheet, they are not part of
total loans and leases or earning assets. In addition, prior to June 30, 2004,
there was a small pool of securitized automobile loans, which represented
off-balance sheet securitized automobile loan assets. Both of these asset
classes represent automobile financing credit exposure, despite not being
components of total loans and leases. As such, operating lease assets and
securitized loans are added to the on-balance sheet automobile loans and leases
to determine a total automobile financing exposure, which Management finds
helpful in evaluating the overall credit risk for the company.
During the third quarter of 2004, $153 million of automobile loans were
sold, resulting in a third quarter pre-tax gain on the sale of automobile loans
of $0.3 million. This sale increased the total automobile loans sold since the
beginning of 2003 to $3.7 billion. These sales represented a continuation of a
strategy to reduce exposure to automobile financing to approximately 20% of
total credit exposure (see Table 10). At September 30, 2004, this exposure was
$4.9 billion, down from $6.2 billion at year-end, and represented 21% of total
credit exposure, down from 22% at the end of the last quarter and from 30% a
year earlier.
Net Loan and Lease Charge-offs
Table 11 reflects net loan and lease charge-off detail for each of the last
five quarters, and the first nine-month period for 2003 and 2004:
Table 11 - Net Loan and Lease Charge-offs
Net Charge-offs by Loan and Lease Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
(in thousands)
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
Commercial and industrial
|
|
$
|
972
|
|
|
$
|
(2,803
|
)
|
|
$
|
5,956
|
|
|
$
|
31,186
|
|
|
$
|
12,222
|
|
Commercial real estate
|
|
|
1,592
|
|
|
|
2,940
|
|
|
|
1,637
|
|
|
|
5,743
|
|
|
|
3,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
2,564
|
|
|
|
137
|
|
|
|
7,593
|
|
|
|
36,929
|
|
|
|
15,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
5,142
|
|
|
|
5,604
|
|
|
|
13,422
|
|
|
|
11,346
|
|
|
|
10,773
|
|
Automobile direct financing leases
|
|
|
2,415
|
|
|
|
2,159
|
|
|
|
3,159
|
|
|
|
1,936
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
7,557
|
|
|
|
7,763
|
|
|
|
16,581
|
|
|
|
13,282
|
|
|
|
12,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
4,527
|
|
|
|
3,019
|
|
|
|
3,116
|
|
|
|
3,464
|
|
|
|
3,416
|
|
Residential mortgage
|
|
|
534
|
|
|
|
302
|
|
|
|
316
|
|
|
|
174
|
|
|
|
246
|
|
Other loans
|
|
|
1,298
|
|
|
|
1,294
|
|
|
|
1,021
|
|
|
|
1,294
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
13,916
|
|
|
|
12,378
|
|
|
|
21,034
|
|
|
|
18,214
|
|
|
|
16,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Charge-offs
|
|
$
|
16,480
|
|
|
$
|
12,515
|
|
|
$
|
28,627
|
|
|
$
|
55,143
|
|
|
$
|
32,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs - Annualized Percentages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
Commercial and industrial
|
|
|
0.07
|
%
|
|
|
(0.20)
|
%
|
|
|
0.44
|
%
|
|
|
2.32
|
%
|
|
$
|
0.91
|
%
|
Commercial real estate
|
|
|
0.14
|
|
|
|
0.28
|
|
|
|
0.16
|
|
|
|
0.56
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
0.10
|
|
|
|
0.01
|
|
|
|
0.32
|
|
|
|
1.55
|
|
|
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
1.11
|
|
|
|
0.96
|
|
|
|
1.77
|
|
|
|
1.29
|
|
|
|
1.20
|
|
Automobile direct financing leases
|
|
|
0.43
|
|
|
|
0.40
|
|
|
|
0.64
|
|
|
|
0.43
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
0.74
|
|
|
|
0.69
|
|
|
|
1.32
|
|
|
|
1.00
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
0.46
|
|
|
|
0.32
|
|
|
|
0.34
|
|
|
|
0.39
|
|
|
|
0.40
|
|
Residential mortgage
|
|
|
0.05
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.03
|
|
|
|
0.05
|
|
Other loans
|
|
|
1.28
|
|
|
|
1.38
|
|
|
|
1.11
|
|
|
|
1.34
|
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
0.45
|
|
|
|
0.41
|
|
|
|
0.70
|
|
|
|
0.61
|
|
|
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs as a % of Average Loans
|
|
|
0.30
|
%
|
|
|
0.23
|
%
|
|
|
0.53
|
%
|
|
|
1.03
|
%
|
|
|
0.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Table 11 - Net Loan and
Lease Charge-offs Continued
Net Charge-offs by Loan and Lease Type
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ending
|
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2003
|
Commercial and industrial
|
|
$
|
4,125
|
|
|
$
|
53,672
|
|
Commercial real estate
|
|
|
6,169
|
|
|
|
4,774
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
10,294
|
|
|
|
58,446
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
24,168
|
|
|
|
28,920
|
|
Automobile direct financing leases
|
|
|
7,733
|
|
|
|
3,792
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
31,901
|
|
|
|
32,712
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
10,662
|
|
|
|
11,140
|
|
Residential mortgage
|
|
|
1,152
|
|
|
|
658
|
|
Other loans
|
|
|
3,613
|
|
|
|
3,710
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
47,328
|
|
|
|
48,220
|
|
|
|
|
|
|
|
|
|
|
Total Net Charge-offs
|
|
$
|
57,622
|
|
|
$
|
106,666
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs - Annualized Percentages
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ending
|
|
|
September 30,
|
|
|
2004
|
|
2003
|
Commercial and industrial
|
|
|
0.10
|
%
|
|
|
1.29
|
%
|
Commercial real estate
|
|
|
0.19
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
0.14
|
|
|
|
0.83
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
1.34
|
|
|
|
1.22
|
|
Automobile direct financing leases
|
|
|
0.48
|
|
|
|
0.39
|
|
|
|
|
|
|
|
|
|
|
Automobile loans and leases
|
|
|
0.94
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
0.37
|
|
|
|
0.45
|
|
Residential mortgage
|
|
|
0.05
|
|
|
|
0.04
|
|
Other loans
|
|
|
1.25
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
Total Consumer
|
|
|
0.52
|
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs as a % of Average Loans
|
|
|
0.35
|
%
|
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
2004 Third Quarter versus 2003 Third Quarter and 2004 Second Quarter
Total net charge-offs for the 2004 third quarter were $16.5 million, or an
annualized 0.30% of average total loans and leases. This was a reduction from
$32.8 million, or 0.64%, in the year-ago quarter. However, it was an increase
from $12.5 million in the second quarter, or an annualized 0.23% of average
total loans and leases, as net charge-offs in the second quarter were reduced
by a $9.7 million one-time recovery of a previously charged-off commercial
loan. This recovery lowered total commercial (C&I and CRE) net charge-offs by
39 basis points and total loan and lease net charge-offs by 18 basis points.
Excluding the impact of this recovery, 2004 second quarter total net
charge-offs would have been $22.2 million, or an annualized 0.41% of average
total loans and leases. Gross charge-offs in the third quarter declined $4.5
million, or 15%, from the second quarter.
Total commercial net charge-offs in the third quarter were $2.6 million,
or an annualized 0.10%, down from $15.8 million, or an annualized 0.68%, in the
year-ago quarter and up from only $137 thousand in the previous quarter.
Adjusting for the $9.7 million recovery noted above (39 basis point impact),
second quarter total commercial net charge-offs would have been $9.8 million,
or an annualized 0.40% of related loans.
Total consumer net charge-offs in the current quarter were $13.9 million,
or an annualized 0.45% of related loans. This compared with $16.9 million, or
0.61%, in the year-ago quarter and $12.4 million, or an annualized 0.41% of
related loans in the 2004 second quarter.
Total automobile loan and lease net charge-offs in the 2004 third quarter
were $7.6 million, or an annualized 0.74% of average automobile loans and
leases. This compared with $12.2 million of net charge-offs, or an annualized
0.94%, in the year-ago quarter and $7.8 million, or an annualized 0.69% in the
second quarter.
43
2004 First Nine Months versus 2003 First Nine Months
Total net charge-offs for the first nine months of 2004 were $57.6
million, or an annualized 0.35% of average total loans and leases. This was a
46% reduction from $106.7 million, or 0.73%, in the comparable year-ago period.
Performance for the first nine months of 2004 was consistent with the
companys net charge-off target of 0.35%-0.45% for a stable economic
environment.
Total commercial (C&I and CRE) net charge-offs in the first nine months of
2004 were only $10.3 million, or an annualized 0.14%, down from $58.4 million,
or 0.83%, in the comparable year-ago period. The decline from the year-ago
period reflected improved credit quality, including lower non-performing assets
(NPAs), as well as the benefit of a $9.7 million C&I recovery in the 2004 first
nine-month period.
Total consumer net charge-offs in the first nine months of 2004 were $47.3
million, or an annualized 0.52% of related loans. This compared with $48.2
million, or 0.63%, in the comparable year-ago period. Total automobile loan
and lease net charge-offs in the first nine months of 2004 were $31.9 million,
or an annualized 0.94% of average automobile loans and leases, down slightly
from $32.7 million, or an annualized 0.97% of average automobile loans and
leases in the year-ago nine-month period.
Non-performing Assets and Past Due Loans and Leases
Table 12 reflects period-end NPAs and past due loans and leases detail for
each of the last five quarters:
Table 12 - Non-Performing Assets and Past Due Loans and Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2004
|
|
2004
|
|
2003
|
|
2003
|
Non-accrual loans and leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
27,140
|
|
|
$
|
32,044
|
|
|
$
|
45,056
|
|
|
$
|
43,387
|
|
|
$
|
82,413
|
|
Commercial real estate
|
|
|
19,762
|
|
|
|
15,782
|
|
|
|
20,019
|
|
|
|
22,399
|
|
|
|
30,545
|
|
Residential mortgage
|
|
|
13,197
|
|
|
|
13,952
|
|
|
|
12,052
|
|
|
|
9,695
|
|
|
|
8,923
|
|
Home equity
|
|
|
7,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and leases (NPLs)
|
|
|
67,784
|
|
|
|
61,778
|
|
|
|
77,127
|
|
|
|
75,481
|
|
|
|
121,881
|
|
Other real estate, net
|
|
|
12,692
|
|
|
|
12,918
|
|
|
|
14,567
|
|
|
|
11,905
|
|
|
|
15,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-performing Assets (NPAs)
|
|
$
|
80,476
|
|
|
$
|
74,696
|
|
|
$
|
91,694
|
|
|
$
|
87,386
|
|
|
$
|
137,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing loans and leases past due 90 days or more
|
|
$
|
53,456
|
|
|
$
|
51,490
|
|
|
$
|
59,697
|
|
|
$
|
55,913
|
|
|
$
|
66,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPLs as a % of total loans and leases
|
|
|
0.30
|
%
|
|
|
0.28
|
%
|
|
|
0.36
|
%
|
|
|
0.36
|
%
|
|
|
0.58
|
%
|
NPAs as a % of total loans and leases and other real estate
|
|
|
0.36
|
|
|
|
0.34
|
|
|
|
0.43
|
|
|
|
0.41
|
|
|
|
0.65
|
|
Allowance for loan and lease losses as a % of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPLs
|
|
|
417
|
|
|
|
464
|
|
|
|
383
|
|
|
|
397
|
|
|
|
276
|
|
NPAs
|
|
|
351
|
|
|
|
384
|
|
|
|
322
|
|
|
|
343
|
|
|
|
245
|
|
Allowance for loan and lease losses plus allowance for
unfunded commitments and letters of credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPLs
|
|
|
461
|
|
|
|
515
|
|
|
|
425
|
|
|
|
444
|
|
|
|
304
|
|
NPAs
|
|
|
389
|
|
|
|
426
|
|
|
|
357
|
|
|
|
384
|
|
|
|
270
|
|
Accruing loans and leases past due 90 days or more to
total loans and leases
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.28
|
|
|
|
0.27
|
|
|
|
0.31
|
|
44
NPAs were $80.5 million at September 30, 2004, down $56.6 million, or 41%,
from the prior year, and up $5.8 million, or 8%, from June 30, 2004. NPAs as a
percent of total loans and leases and other real estate were 0.36% at September
30, 2004, down from 0.65% a year-ago, but up slightly from 0.34% at June 30,
2004. At September 30, 2004, the company adopted a new policy of placing home
equity loans and lines on non-accrual status when they exceed 180 days past
due. Such loans were previously classified as accruing loans and leases past
due 90 days or more. This policy change conforms the home equity loans and
lines classification to that of other consumer loans secured by residential
real estate. As a result of this change in policy, the current quarter
included $7.7 million of non-performing home equity loans and lines secured by
real estate. NPAs at September 30, 2004, included $30.2 million of lower-risk
residential real estate-related assets, which represented 38% of total NPAs.
This compared with $19.1 million, or 14%, at the end of the year-ago quarter.
The over 90-day delinquent, but still accruing, ratio was 0.24% at
September 30, 2004, down from 0.31% a year ago, and unchanged from 0.24% at
June 30, 2004.
Table 13 reflects NPA activity. The $22.7 million of new NPAs in the 2004
third quarter included the addition of the $7.7 million of non-performing home
equity loans and lines due to the policy change noted above. Excluding the
$7.7 million, new NPAs in the third quarter were $15.1 million.
Non-performing Assets Activity
Table 13 Non-Performing Asset Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2004
|
|
2004
|
|
2003
|
|
2003
|
Beginning of Period
|
|
$
|
74,696
|
|
|
$
|
91,694
|
|
|
$
|
87,386
|
|
|
$
|
137,077
|
|
|
$
|
133,722
|
|
New non-performing assets
|
|
|
22,740
|
|
|
|
25,727
|
|
|
|
27,208
|
|
|
|
38,367
|
|
|
|
52,213
|
|
Returns to accruing status
|
|
|
|
|
|
|
(1,493
|
)
|
|
|
(54
|
)
|
|
|
(454
|
)
|
|
|
(319
|
)
|
Loans and lease losses
|
|
|
(5,424
|
)
|
|
|
(12,872
|
)
|
|
|
(10,463
|
)
|
|
|
(39,657
|
)
|
|
|
(22,090
|
)
|
Payments
|
|
|
(10,202
|
)
|
|
|
(13,571
|
)
|
|
|
(10,717
|
)
|
|
|
(22,710
|
)
|
|
|
(18,905
|
)
|
Sales
|
|
|
(1,334
|
)
|
|
|
(14,789
|
)
|
|
|
(1,666
|
)
|
|
|
(25,237
|
)
|
|
|
(7,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period
|
|
$
|
80,476
|
|
|
$
|
74,696
|
|
|
$
|
91,694
|
|
|
$
|
87,386
|
|
|
$
|
137,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Allowances for Credit Losses (ACL) and Provision for Credit Losses
The company maintains two reserves, both of which are available to absorb
possible credit losses: the allowance for loan and lease losses (ALLL) and the
allowance for unfunded loan commitments (AULC). When summed together, these
reserves constitute the total allowances for credit losses (ACL). Table 14
reflects activity in the ALLL and AULC for the past five quarters:
Table 14 Allowances for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
(in thousands)
|
|
2004
|
|
2004
|
|
2004
|
|
2003
|
|
2003
|
Allowance for Loan and Lease Losses, Beginning of Period
|
|
$
|
286,935
|
|
|
$
|
295,377
|
|
|
$
|
299,732
|
|
|
$
|
336,398
|
|
|
$
|
307,667
|
|
Loan and lease losses
|
|
|
(26,366
|
)
|
|
|
(30,845
|
)
|
|
|
(37,167
|
)
|
|
|
(68,023
|
)
|
|
|
(43,261
|
)
|
Recoveries of loans previously charged off
|
|
|
9,886
|
|
|
|
18,330
|
|
|
|
8,540
|
|
|
|
12,880
|
|
|
|
10,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan and lease losses
|
|
|
(16,480
|
)
|
|
|
(12,515
|
)
|
|
|
(28,627
|
)
|
|
|
(55,143
|
)
|
|
|
(32,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
11,785
|
|
|
|
5,027
|
|
|
|
25,596
|
|
|
|
26,341
|
|
|
|
51,615
|
|
Net change in allowance for unfunded loan commitments and letters of credit
|
|
|
1,186
|
|
|
|
896
|
|
|
|
3,433
|
|
|
|
(1,785
|
)
|
|
|
(457
|
)
|
Allowance of assets sold and securitized
(1)
|
|
|
(776
|
)
|
|
|
(1,850
|
)
|
|
|
(4,757
|
)
|
|
|
(6,079
|
)
|
|
|
10,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan and Lease Losses, End of Period
|
|
$
|
282,650
|
|
|
$
|
286,935
|
|
|
$
|
295,377
|
|
|
$
|
299,732
|
|
|
$
|
336,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Unfunded Loan Commitments and Letters of Credit,
Beginning of Period
|
|
$
|
31,193
|
|
|
$
|
32,089
|
|
|
$
|
35,522
|
|
|
$
|
33,737
|
|
|
$
|
33,280
|
|
Net change
|
|
|
(1,186
|
)
|
|
|
(896
|
)
|
|
|
(3,433
|
)
|
|
|
1,785
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Unfunded Loan Commitments and Letters of Credit,
End of Period
|
|
$
|
30,007
|
|
|
$
|
31,193
|
|
|
$
|
32,089
|
|
|
$
|
35,522
|
|
|
$
|
33,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowances for Credit Losses
|
|
$
|
312,657
|
|
|
$
|
318,128
|
|
|
$
|
327,466
|
|
|
$
|
335,254
|
|
|
$
|
370,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for Credit Losses as a % of total loans and leases
|
|
|
1.38
|
%
|
|
|
1.46
|
%
|
|
|
1.55
|
%
|
|
|
1.59
|
%
|
|
|
1.75
|
%
|
Components of ALLL as a % of total loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction reserve
|
|
|
0.84
|
%
|
|
|
0.86
|
%
|
|
|
0.91
|
%
|
|
|
0.88
|
%
|
|
|
0.98
|
%
|
Economic reserve
|
|
|
0.33
|
|
|
|
0.36
|
|
|
|
0.38
|
|
|
|
0.40
|
|
|
|
0.47
|
|
Specific reserve
|
|
|
0.08
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.14
|
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1.25
|
%
|
|
|
1.32
|
%
|
|
|
1.39
|
%
|
|
|
1.42
|
%
|
|
|
1.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The third quarter 2003 includes the allowance for loan losses associated with automobile loans from a securitizations trust that was consolidated as a result of the adoption of FASB Interpretation
No. 46 on July 1, 2003.
The September 30, 2004, ALLL was $282.7 million, down from $336.4 million
a year ago and from $286.9 million at June 30, 2004. These declines reflected
continued credit quality improvement, the change in the mix of the loan
portfolio to lower-risk residential mortgages and home equity loans, and
improvement in the economic outlook. Expressed as a percent of period-end
loans and leases, the ALLL at September 30, 2004, was 1.25%, down from 1.59% a
year-ago and from 1.32% at June 30, 2004. The ALLL as a percent of NPAs was
351% at September 30, 2004, up from 245% a year ago, but down from 384% at June
30, 2004.
The September 30, 2004, AULC was $30.0 million, down slightly from $33.7
million at the end of the year-ago quarter, and from $31.2 million at June 30,
2004.
On a combined basis, the ACL as a percent of total loans and leases was
1.38% at September 30, 2004, compared with 1.75% a year ago and 1.46% at the
end of last quarter. The ACL as a percent of NPAs was 389% at September 30,
2004, compared with 270% a year earlier and 426% at June 30, 2004.
The provision for credit losses in the 2004 third quarter was $11.8
million, a $39.8 million reduction from the year-ago quarter, but a $6.8
million increase from the 2004 second quarter. The reduction in provision
expense from the year-ago quarter reflected overall improved portfolio quality
performance and a stronger economic outlook, only partially offset by provision
expense related to loan growth. The increase in provision expense from the
second quarter primarily reflected lower recoveries, as the second quarter
included a $9.7 million commercial loan recovery. As previously disclosed,
46
effective January 1, 2004, the company adopted a more quantitative approach to
calculating the economic reserve component of the
ALLL making this component more responsive to changes in economic
conditions (see discussion below). This change, combined with the quantitative
approach for determining the transaction reserve component, as well as changes
to the specific reserve component, may result in more volatility in the total
ALLL, and corresponding provision for loan and lease losses.
The ALLL consists of three components, the transaction reserve, the
economic reserve, and specific reserves (see the Credit Risk discussion in
companys 2003 Form 10-K for additional discussion).
Transaction
reserve This ALLL component is based on historical portfolio
performance information. Specifically, the probability-of-default and the
loss-in-event-of-default are assigned an expected risk factor based on the
type and structure of each credit. Reserve factors are then calculated and
applied at an individual loan level for all products.
Specific
reserves This ALLL component represents the sum of
credit-by-credit reserve decisions for individual C&I and CRE loans when
it is determined that the related expected risk factor is insufficient to
cover the estimated losses embedded in the specified credit facility.
Economic
reserve This ALLL component reflects anticipated losses
impacted by changes in the economic environment. As previously reported,
effective January 1, 2004, the company adopted a significantly more
quantitative approach to the calculation of the economic reserve
component. In order to quantify the economic reserve, the company
identified four statistically significant indicators of loss volatility
over the seven-year period from 1996 through 2003. The four variables as
identified by the regression model are: (1) the US Index of Leading
Economic Indicators, (2) the US Corporate Profits Index, (3) the US
Unemployment Index, and (4) the University of Michigan Current Consumer
Confidence Index.
This methodology permits the decomposition of the total ALLL ratio into
these three components and provides increased insight into the rationale for
increases or decreases in the overall ALLL ratio. As shown in Table 14, the
ALLL ratio at September 30, 2004 was 1.25%, of which 0.84% represented the
transaction reserve, 0.33% the economic reserve, and 0.08% specific reserves.
Of the 7 basis point decline in the ALLL ratio from 1.32% at June 30, 2004, the
transaction and specific reserves each accounted for 2 basis points of the
decline. This reflected the combination of the shift in the loan and lease
portfolio mix toward higher credit quality loans, as well as the release of
specific reserves due to the improvement in the credit quality and/or the
resolution of individual C&I and CRE credit situations. The remaining 3 basis
points of decline in the ALLL ratio represented lower relative economic
reserves, reflecting an improved economic outlook. This more quantitative
methodology for determining the ALLL will be more responsive to changes in the
portfolio mix, the economic environment, and individual credit situations, with
the result being an ALLL ratio that exhibits greater quarterly fluctuations.
MARKET RISK
Market risk is the potential for losses in the fair value of the companys
assets and liabilities due to changes in interest rates, exchange rates, and
equity prices. The company incurs market risk in the normal course of business.
Market risk arises when the company extends fixed-rate loans, purchases
fixed-rate securities, originates fixed-rate certificates of deposit (CDs),
obtains funding through fixed-rate borrowings, and leases automobiles and
equipment based on expected lease residual values. Market risk arising from
changes in interest rates, which affects the market values of fixed-rate assets
and liabilities, is interest rate risk. Market risk arising from the
possibility that the uninsured residual value of leased assets will be
different at the end of the lease term than was estimated at the leases
inception is residual value risk. From time to time, the company also has small
exposures to trading risk and foreign exchange risk. At September 30, 2004, the
company had $120.3 million of trading assets, primarily in its broker/dealer
businesses.
Interest Rate Risk
Interest rate risk is the primary market risk incurred by the company. It
results from timing differences in the repricing and maturity of assets and
liabilities and changes in relationships between market interest rates and the
yields on assets and rates on liabilities, including the impact of embedded
options.
Management seeks to minimize the impact of changing interest rates on the
companys net interest income and the fair value of assets and liabilities. The
board of directors establishes broad policies regarding interest rate and
market risk
47
and liquidity risk. The asset and liability committee (ALCO) establishes
specific operating limits within the parameters of the board of directors
policies. ALCO regularly monitors position concentrations and the level of
interest rate sensitivity to ensure compliance with board of directors approved
risk tolerances (see Interest Rate Risk discussion in the companys 2003 Form
10-K for a complete discussion).
Interest rate risk modeling is performed monthly. Two broad approaches to
modeling interest rate risk are employed: income simulation and economic value
analysis. An income simulation analysis is used to measure the sensitivity of
forecasted net interest income to changes in market rates over a one-year
horizon. The economic value analysis (Economic Value of Equity or EVE) is
calculated by subjecting the period-end balance sheet to changes in interest
rates and measuring the impact of the changes in the value of the assets and
liabilities.
The simulations for evaluating short-term interest rate risk exposure are
scenarios that model gradual 100 and 200 basis point increasing and decreasing
parallel shifts in interest rates over the next twelve-month period beyond the
interest rate change implied by the current yield curve. The table below shows
the results of the scenarios as of September 30, 2004, and June 30, 2004. All
of the positions were well within the board of directors policy limits.
Net Interest Income at Risk (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis point change scenario
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
Board Policy Limits
|
|
|
-4.0
|
%
|
|
|
-2.0
|
%
|
|
|
-2.0
|
%
|
|
|
-4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
|
N.M.
|
|
|
|
-0.5
|
%
|
|
|
+0.3
|
%
|
|
|
+0.5
|
%
|
June 30, 2004
|
|
|
N.M.
|
|
|
|
-0.3
|
%
|
|
|
-0.0
|
%
|
|
|
-0.1
|
%
|
December 31, 2003
|
|
|
N.M.
|
|
|
|
-0.3
|
%
|
|
|
-0.2
|
%
|
|
|
-0.5
|
%
|
N.M.
Not Meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The primary simulations for EVE risk assume an immediate and parallel
increase in rates of +/- 100 and +/- 200 basis points beyond any interest rate
change implied by the current yield curve. The table below outlines the results
compared to the previous quarter and policy limits.
Economic Value of Equity at Risk (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis point change scenario
|
|
|
-200
|
|
|
|
-100
|
|
|
|
+100
|
|
|
|
+200
|
|
Board Policy Limits
|
|
|
-12.0
|
%
|
|
|
-5.0
|
%
|
|
|
-5.0
|
%
|
|
|
-12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
|
N.M.
|
|
|
|
-0.4
|
%
|
|
|
-1.4
|
%
|
|
|
-3.9
|
%
|
June 30, 2004
|
|
|
N.M.
|
|
|
|
+1.5
|
%
|
|
|
-2.8
|
%
|
|
|
-6.2
|
%
|
December 31, 2003
|
|
|
N.M.
|
|
|
|
+1.8
|
%
|
|
|
-3.5
|
%
|
|
|
-7.9
|
%
|
N.M.
Not Meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY RISK
The objective of effective liquidity management is to ensure that cash
flow needs can be met on a timely basis at a reasonable cost under both normal
operating conditions and unforeseen or unpredictable circumstances. The
liquidity of the Bank is available to originate loans and leases and to repay
deposit and other liabilities as they become due or are demanded by customers.
Liquidity risk arises from the possibility that funds may not be available to
satisfy current or future commitments based on external macro market issues,
investor perception of financial strength, and events unrelated to the company
such as war, terrorism, or financial institution market specific issues (see
Liquidity discussion in the companys 2003 Form 10-K for a complete
discussion).
The primary source of funding is core deposits from retail and commercial
customers (see Table 15). As of September 30, 2004, core deposits totaled
$16.7 billion, and represented 83% of total deposits. This compared with $15.6
billion, or 83% of total deposits, a year earlier. Most of the growth in core
deposits was attributable to growth in interest bearing and non-interest
bearing demand deposits as retail CDs declined.
48
Table 15 - Deposit Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
June 30, 2004
|
|
March 31, 2004
|
|
December 31, 2003
|
|
September 30, 2003
|
(in millions)
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
By Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
Non-interest bearing
|
|
$
|
3,264
|
|
|
|
16.2
|
%
|
|
$
|
3,327
|
|
|
|
17.1
|
%
|
|
$
|
2,918
|
|
|
|
15.4
|
%
|
|
$
|
2,987
|
|
|
|
16.2
|
%
|
|
$
|
3,003
|
|
|
|
15.9
|
%
|
Interest bearing
|
|
|
7,472
|
|
|
|
37.2
|
|
|
|
7,124
|
|
|
|
36.6
|
|
|
|
6,866
|
|
|
|
36.2
|
|
|
|
6,411
|
|
|
|
34.7
|
|
|
|
6,425
|
|
|
|
34.1
|
|
Savings deposits
|
|
|
2,983
|
|
|
|
14.8
|
|
|
|
3,011
|
|
|
|
15.5
|
|
|
|
3,002
|
|
|
|
15.8
|
|
|
|
2,960
|
|
|
|
16.0
|
|
|
|
3,000
|
|
|
|
15.9
|
|
Retail certificates of deposit
|
|
|
2,441
|
|
|
|
12.1
|
|
|
|
2,412
|
|
|
|
12.4
|
|
|
|
2,395
|
|
|
|
12.6
|
|
|
|
2,462
|
|
|
|
13.3
|
|
|
|
2,484
|
|
|
|
13.2
|
|
Other domestic time deposits
|
|
|
588
|
|
|
|
3.0
|
|
|
|
595
|
|
|
|
3.1
|
|
|
|
608
|
|
|
|
3.2
|
|
|
|
631
|
|
|
|
3.4
|
|
|
|
638
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Core Deposits
|
|
|
16,748
|
|
|
|
83.3
|
|
|
|
16,470
|
|
|
|
84.7
|
|
|
|
15,789
|
|
|
|
83.2
|
|
|
|
15,451
|
|
|
|
83.6
|
|
|
|
15,550
|
|
|
|
82.5
|
|
Domestic time deposits of $100,000
or more
|
|
|
998
|
|
|
|
5.0
|
|
|
|
808
|
|
|
|
4.2
|
|
|
|
791
|
|
|
|
4.2
|
|
|
|
789
|
|
|
|
4.3
|
|
|
|
844
|
|
|
|
4.5
|
|
Brokered time deposits and
negotiable CDs
|
|
|
1,896
|
|
|
|
9.4
|
|
|
|
1,679
|
|
|
|
8.6
|
|
|
|
1,942
|
|
|
|
10.2
|
|
|
|
1,772
|
|
|
|
9.6
|
|
|
|
1,837
|
|
|
|
9.8
|
|
Foreign time deposits
|
|
|
467
|
|
|
|
2.3
|
|
|
|
508
|
|
|
|
2.5
|
|
|
|
467
|
|
|
|
2.4
|
|
|
|
475
|
|
|
|
2.5
|
|
|
|
603
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
20,109
|
|
|
|
100.0
|
%
|
|
$
|
19,465
|
|
|
|
100.0
|
%
|
|
$
|
18,989
|
|
|
|
100.0
|
%
|
|
$
|
18,487
|
|
|
|
100.0
|
%
|
|
$
|
18,834
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Business Segment
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Ohio
|
|
$
|
4,400
|
|
|
|
21.9
|
%
|
|
$
|
4,386
|
|
|
|
22.5
|
%
|
|
$
|
4,378
|
|
|
|
23.1
|
%
|
|
$
|
4,184
|
|
|
|
22.6
|
%
|
|
$
|
4,189
|
|
|
|
22.3
|
%
|
Northern Ohio
|
|
|
4,015
|
|
|
|
20.0
|
|
|
|
3,774
|
|
|
|
19.4
|
|
|
|
3,517
|
|
|
|
18.5
|
|
|
|
3,505
|
|
|
|
19.0
|
|
|
|
3,531
|
|
|
|
18.8
|
|
Southern Ohio/Kentucky
|
|
|
1,601
|
|
|
|
8.0
|
|
|
|
1,559
|
|
|
|
8.0
|
|
|
|
1,476
|
|
|
|
7.8
|
|
|
|
1,442
|
|
|
|
7.8
|
|
|
|
1,437
|
|
|
|
7.6
|
|
West Michigan
|
|
|
2,699
|
|
|
|
13.4
|
|
|
|
2,599
|
|
|
|
13.4
|
|
|
|
2,609
|
|
|
|
13.7
|
|
|
|
2,457
|
|
|
|
13.3
|
|
|
|
2,529
|
|
|
|
13.4
|
|
East Michigan
|
|
|
2,169
|
|
|
|
10.8
|
|
|
|
2,081
|
|
|
|
10.7
|
|
|
|
2,030
|
|
|
|
10.7
|
|
|
|
1,988
|
|
|
|
10.8
|
|
|
|
2,000
|
|
|
|
10.6
|
|
West Virginia
|
|
|
1,381
|
|
|
|
6.9
|
|
|
|
1,369
|
|
|
|
7.0
|
|
|
|
1,292
|
|
|
|
6.8
|
|
|
|
1,315
|
|
|
|
7.1
|
|
|
|
1,324
|
|
|
|
7.0
|
|
Indiana
|
|
|
666
|
|
|
|
3.3
|
|
|
|
668
|
|
|
|
3.4
|
|
|
|
637
|
|
|
|
3.4
|
|
|
|
648
|
|
|
|
3.5
|
|
|
|
661
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Regional Banking
|
|
|
16,931
|
|
|
|
84.2
|
|
|
|
16,435
|
|
|
|
84.4
|
|
|
|
15,939
|
|
|
|
84.0
|
|
|
|
15,539
|
|
|
|
84.1
|
|
|
|
15,671
|
|
|
|
83.2
|
|
Dealer Sales
|
|
|
70
|
|
|
|
0.3
|
|
|
|
71
|
|
|
|
0.4
|
|
|
|
77
|
|
|
|
0.4
|
|
|
|
77
|
|
|
|
0.4
|
|
|
|
65
|
|
|
|
0.4
|
|
Private Financial Group
|
|
|
1,125
|
|
|
|
5.6
|
|
|
|
1,016
|
|
|
|
5.2
|
|
|
|
1,057
|
|
|
|
5.6
|
|
|
|
1,164
|
|
|
|
6.3
|
|
|
|
1,117
|
|
|
|
5.9
|
|
Treasury/Other
(1)
|
|
|
1,983
|
|
|
|
9.9
|
|
|
|
1,943
|
|
|
|
10.0
|
|
|
|
1,916
|
|
|
|
10.0
|
|
|
|
1,707
|
|
|
|
9.2
|
|
|
|
1,981
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
20,109
|
|
|
|
100.0
|
%
|
|
$
|
19,465
|
|
|
|
100.0
|
%
|
|
$
|
18,989
|
|
|
|
100.0
|
%
|
|
$
|
18,487
|
|
|
|
100.0
|
%
|
|
$
|
18,834
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Comprised largely of brokered deposits and negotiable CDs.
|
(2)
|
|
Prior period amounts have been reclassified to conform to the current period business segment structure.
|
Liquidity policies and limits are established by the board of directors,
with operating limits set by ALCO. Two primary liquidity measures are the
ratio of loans and operating lease assets to deposits and the percentage of
assets funded with non-core, or wholesale, liabilities. The limits set by the
board for these two liquidity measures are 135% and 40%, respectively. At
September 30, 2004, the actual ratio of loans and operating leases to deposits
was 116%, while the percentage of assets funded with non-core or wholesale
liabilities was 35%. In addition, guidelines are established by ALCO to ensure
diversification of wholesale funding by type, source, and maturity and provide
sufficient balance sheet liquidity to cover 100% of wholesale funds maturing
within a six-month time period. A contingency funding plan is in place, which
includes forecasted sources and uses of funds under various scenarios in order
to prepare for unexpected liquidity shortages, including the implications of
any rating agency changes. ALCO meets monthly to identify and monitor
liquidity issues, provide policy guidance, and oversee adherence to, and the
maintenance of, an evolving contingency funding plan.
Credit ratings by the three major credit rating agencies are an important
component of the companys liquidity profile. Among other factors, the credit
ratings are based on the financial strength, credit quality and concentrations
in the loan portfolio, the level and volatility of earnings, capital adequacy,
the quality of management, the liquidity of the balance sheet, the availability
of a significant base of core retail and commercial deposits, and the companys
ability to access a broad array of wholesale funding sources. Adverse changes
in these factors could result in a negative change in credit ratings and impact
not only the ability to raise funds in the capital markets, but also the cost
of these funds. In addition, certain financial on- and off-balance sheet
arrangements contain credit rating triggers that could increase funding needs
if a negative rating change occurs. Letter of credit commitments for
marketable securities, interest rate swap collateral agreements, and certain
asset securitization transactions contain credit rating provisions.
49
As of September 30, 2004, credit ratings are as follows:
|
|
|
|
|
|
|
|
|
|
|
Senior
|
|
|
|
|
|
|
|
|
Unsecured
|
|
Subordinated
|
|
Short
|
|
|
|
|
Notes
|
|
Notes
|
|
Term
|
|
Outlook
|
Huntington Bancshares Incorporated
|
|
|
|
|
|
|
|
|
Moodys Investor Service
(1)
|
|
A2
|
|
A3
|
|
P1
|
|
Negative
|
Standard and Poors
|
|
A-
|
|
BBB+
|
|
A2
|
|
Stable
|
Fitch Ratings
(1)
|
|
A
|
|
A-
|
|
F1
|
|
Negative
|
The Huntington National Bank
|
|
|
|
|
|
|
|
|
Moodys Investor Service
(1)
|
|
A1
|
|
A2
|
|
P1
|
|
Negative
|
Standard and Poors
|
|
A
|
|
A-
|
|
A1
|
|
Stable
|
Fitch Ratings
(1)
|
|
A
|
|
A-
|
|
F1
|
|
Negative
|
(1)
|
|
Following Huntingtons announcement on November 3, 2004, as more
fully described in Note 4 to the Unaudited Condensed Consolidated
Financial Statements, Fitch Ratings revised their outlook for
Huntington to Negative from Stable. Also, Moodys Investors Service
placed all the ratings of Huntington on review for possible downgrade.
|
Management believes that sufficient liquidity exists to meet the funding
needs of the Bank and the parent company.
OFF-BALANCE SHEET ARRANGEMENTS
Like other financial organizations, Huntington has various commitments in
the ordinary course of business that, under GAAP, are not recorded in the
financial statements. Specifically, Huntington makes various commitments to
extend credit to customers, to sell loans, and to maintain obligations under
operating-type non-cancelable leases for its facilities. Derivatives and other
off-balance sheet arrangements are discussed under the Market Risk section of
the companys 2003 Form 10-K.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. These guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. There were $989
million of outstanding standby letters of credit at September 30, 2004.
Non-interest income was recognized from the issuance of these standby letters
of credit of $8.5 million for the nine-month period ended September 30, 2004.
The carrying amount of deferred revenue related to standby letters of credit at
September 30, 2004, was $3.9 million. Standby letters of credit are included in
the determination of the amount of risk-based capital that the company and the
Bank are required to hold.
CAPITAL
Capital is managed both at the parent and the Bank levels. Capital levels
are maintained based on regulatory capital requirements and the economic
capital required to support credit, market, and operation risks inherent in the
companys business and to provide the flexibility needed for future growth and
new business opportunities. Management places significant emphasis on the
maintenance of a strong capital position, which promotes investor confidence,
provides access to the national markets under favorable terms, and enhances
business growth and acquisition opportunities. The importance of managing
capital is also recognized, and Management continually strives to maintain an
appropriate balance between capital adequacy and providing attractive returns
to shareholders.
Shareholders equity totaled $2.5 billion at September 30, 2004. This
balance represented a $186 million increase from December 31, 2003. The growth
in shareholders equity resulted from the retention of net income after
dividends to shareholders of $181 million and stock option exercises of $18
million. This growth was offset by a decrease in accumulated other
comprehensive income of $16 million. The decrease in accumulated other
comprehensive income primarily resulted from a decline in the market value of
securities available for sale, partially offset by an increase in the market
value of cash flow hedges at September 30, 2004, compared with December 31,
2003.
On September 4, 2001, options totaling 3.2 million shares of common stock
were granted to, with certain specified exceptions, full- and part-time
employees under the Huntington Bancshares Incorporated Employee Stock Incentive
Plan
50
(the Incentive Plan). Under the terms of the Incentive Plan, these
options were to vest on the earlier of September 4, 2006, or at such time as
the closing price for Huntingtons common stock for five consecutive trading
days reached or exceeded $25.00. Huntingtons common stock closing price
exceeded $25.00 for each of the five consecutive trading days beginning October
1, 2004, and ending October 7, 2004. As a result, options for 2.0 million
shares of common stock granted under the Incentive Plan, net of options for 1.2
million shares cancelled due to employee attrition, became fully vested and
exercisable after the close of trading on October 7, 2004.
At September 30, 2004, the company had unused authority to repurchase up
to 7.5 million shares, though no shares were repurchased during the 2004 third
quarter. This authorization may be used to help mitigate the dilutive earnings
impact resulting from the issuance of these Incentive Plan shares. All
purchases under the current authorization will be made from time-to-time in the
open market or through privately negotiated transactions depending on market
conditions.
On October 13, 2004, the board of directors declared a quarterly cash
dividend on its common stock of $0.20 per common share. The dividend is
payable January 3, 2005, to shareholders of record on December 17, 2004.
Table 16 - Quarterly Common Stock Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2003
|
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
Common Stock Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
(1)
|
|
$
|
25.150
|
|
|
$
|
23.120
|
|
|
$
|
23.780
|
|
|
$
|
22.550
|
|
|
$
|
20.890
|
|
Low
(1)
|
|
|
22.700
|
|
|
|
20.890
|
|
|
|
21.000
|
|
|
|
19.850
|
|
|
|
19.220
|
|
Close
|
|
|
24.910
|
|
|
|
22.980
|
|
|
|
22.030
|
|
|
|
22.500
|
|
|
|
19.850
|
|
Average closing price
|
|
|
24.105
|
|
|
|
22.050
|
|
|
|
22.501
|
|
|
|
21.584
|
|
|
|
20.199
|
|
Book value per share
|
|
$
|
10.69
|
|
|
$
|
10.40
|
|
|
$
|
10.31
|
|
|
$
|
9.93
|
|
|
$
|
9.79
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared
|
|
$
|
0.200
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
|
$
|
0.175
|
|
Common shares outstanding (000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average - Basic
|
|
|
229,848
|
|
|
|
229,429
|
|
|
|
229,227
|
|
|
|
228,902
|
|
|
|
228,715
|
|
Average - Diluted
|
|
|
234,348
|
|
|
|
232,659
|
|
|
|
232,915
|
|
|
|
231,986
|
|
|
|
230,966
|
|
Ending
|
|
|
230,153
|
|
|
|
229,476
|
|
|
|
229,410
|
|
|
|
229,008
|
|
|
|
228,870
|
|
Common Share Repurchase Program (000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
High and low stock prices are intra-day quotes obtained from NASDAQ.
|
Average equity to average assets in the 2004 third quarter was 7.66%, up
from 7.49% a year earlier, and up from 7.42% for the second quarter of 2004
(see Table 17). At September 30, 2004, the tangible equity to assets ratio was
7.11%, up from 6.77% a year ago, and from 6.95% at June 30, 2004. The increase
from June 30, 2004, primarily reflected growth in retained earnings.
51
Table 17 - Capital Adequacy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30
|
|
June 30,
|
|
March 31
|
|
December 31,
|
|
September 30,
|
(in millions)
|
|
2004
|
|
2004
|
|
2004
|
|
2003
|
|
2003
|
Total Risk-Adjusted Assets
|
|
$
|
28,773
|
|
|
$
|
28,413
|
|
|
$
|
28,236
|
|
|
$
|
28,164
|
|
|
$
|
27,949
|
|
Tier 1 Risk-Based Capital Ratio
|
|
|
9.08
|
%
|
|
|
8.98
|
%
|
|
|
8.74
|
%
|
|
|
8.53
|
%
|
|
|
8.40
|
%
|
Total Risk-Based Capital Ratio
|
|
|
12.50
|
|
|
|
12.56
|
|
|
|
12.38
|
|
|
|
11.95
|
|
|
|
11.19
|
|
Tier 1 Leverage Ratio
|
|
|
8.36
|
|
|
|
8.20
|
|
|
|
8.08
|
|
|
|
7.98
|
|
|
|
7.94
|
|
Tangible Equity / Assets Ratio
|
|
|
7.11
|
|
|
|
6.95
|
|
|
|
6.97
|
|
|
|
6.79
|
|
|
|
6.77
|
|
Tangible Equity / Risk-Weighted Assets Ratio
|
|
|
7.80
|
|
|
|
7.64
|
|
|
|
7.61
|
|
|
|
7.30
|
|
|
|
7.24
|
|
Average Equity / Average Assets
|
|
|
7.66
|
|
|
|
7.42
|
|
|
|
7.39
|
|
|
|
7.32
|
|
|
|
7.49
|
|
At September 30, 2004, the tangible equity to risk-weighted assets ratio
was 7.80%, up significantly from 7.24% in the year-ago quarter, and up from
7.64% at June 30, 2004. The increase in the tangible equity to risk-weighted
assets ratio reflected primarily the positive impact resulting from reducing
the overall risk profile of earning assets throughout this period, most notably
a less risky loan portfolio mix, as well as growth in low risk investment
securities.
The Federal Reserve Board, which supervises and regulates the company,
sets minimum capital requirements for each of these regulatory capital ratios.
In the calculation of these risk-based capital ratios, risk weightings are
assigned to certain asset and off-balance sheet items such as interest rate
swaps, loan commitments, and securitizations. Huntingtons Tier 1 Risk-based
Capital, Total Risk-based Capital, Tier 1 Leverage ratios, and risk-adjusted
assets for the recent five quarters are well in excess of minimum levels
established for well capitalized institutions of 6.00%, 10.00%, and 5.00%,
respectively. At September 30, 2004, the company had regulatory capital ratios
in excess of well capitalized regulatory minimums.
The Bank is primarily supervised and regulated by the Office of the
Comptroller of the Currency, which establishes regulatory capital guidelines
for banks similar to those established for bank holding companies by the
Federal Reserve Board. At September 30, 2004, the Bank had regulatory capital
ratios in excess of well capitalized regulatory minimums.
LINES OF BUSINESS DISCUSSION
Huntington has three distinct lines of business: Regional Banking, Dealer
Sales, and the Private Financial Group (PFG). A fourth segment includes the
companys Treasury functions and capital markets activities and other
unallocated assets, liabilities, revenue, and expense. Lines of business
results are determined based upon the companys management reporting system,
which assigns balance sheet and income statement items to each of the business
segments. The process is designed around Huntingtons organizational and
management structure and, accordingly, the results below are not necessarily
comparable with similar information published by other financial institutions.
A description of each segment and discussion of financial results is provided
below.
Management uses earnings on an operating basis, rather than on a GAAP
basis, to measure underlying performance trends for each business segment.
Analyzing earnings on an operating basis is very helpful in assessing
underlying performance trends, a critical factor used by Management to
determine the success of strategies and future earnings capabilities.
Operating earnings represent GAAP earnings adjusted to exclude the impact of
the significant items discussed in Note 8 to the Condensed Consolidated
Financial Statements.
Regional Banking
Regional Banking provides products and services to retail, business
banking, and commercial customers. These products and services are offered in
seven operating regions within the five states of Ohio, Michigan, West
Virginia, Indiana, and Kentucky through the companys traditional banking
network. Each region is further divided into Retail and Commercial Banking
units. Retail products and services include home equity loans and lines of
credit, first mortgage loans, direct installment loans, business loans,
personal and business deposit products, as well as sales of investment and
insurance services. Retail products and services comprise 59% and 80% of total
Regional Banking loans and deposits, respectively. These products and services
are delivered to customers through banking offices, ATMs, Direct Bank
Huntingtons customer service center, and Web Bank at huntington.com.
Commercial banking serves middle-market and commercial banking relationships,
which use a variety of banking products and services including commercial
loans, international trade,
52
cash management, leasing, interest rate protection
products, capital market alternatives, 401(k) plans, and mezzanine investment
capabilities.
2004 Third Quarter versus 2003 Third Quarter
Regional banking contributed $59.1 million of the companys net operating
earnings in the third quarter of 2004, up $4.0 million, or 7%, from the third
quarter of 2003. This increase was due primarily to a $27.5 million reduction
in provision for credit losses, which was partially offset by $21.3 million
decline in mortgage banking income. Total fully taxable equivalent revenues
declined $18.4 million, or 7%, from the third quarter of 2003 due to lower
mortgage banking income. Total expenses increased $3.0 million, or 2%, from
the year-ago quarter. The ROA was 1.39% in the current quarter, down from
1.45% in the year-ago quarter, though the ROE of 22.4% in the current quarter
increased from 21.2% in the year-ago quarter.
Compared with the year-ago quarter, 2004 third quarter net interest income
increased $2.2 million, or 1%, reflecting an 18% increase in average total
loans and 5% increase in average total deposits, partially offset by a 43 basis
point decline in net interest margin to 4.10% from 4.53%.
Average total loans increased $2.4 billion, or 18%, primarily reflecting a
$1.7 billion increase in average residential mortgages, a $0.5 billion, or 15%,
increase in home equity loans and lines of credit, as well as a $0.5 billion,
or 12%, increase in average CRE loans. The growth in home equity, residential
mortgages, and CRE loans reflected the continued favorable impact of low
interest rates on demand for real estate-related financing. Total average C&I
loans declined $0.2 billion, or 6%, from the year-ago quarter, due in part to
weak demand, as well as the impact from continued strategies to lower exposure
to large individual commercial credits, and to a lesser degree, a decline in
shared national credits. Small Business C&I and CRE loans (included in total
average C&I and CRE loans) increased $0.2 billion, or 11%, due to specific
strategies that focus on this business segment.
Average total deposits increased $0.8 billion, or 5%. This reflected
strong growth in average interest bearing demand deposits, up $0.9 billion, or
15%, which was partially offset by a $0.1 billion, or 4%, decline in domestic
time deposits. Of the $0.8 billion increase in average total deposits,
Commercial Banking accounted for $0.6 billion and Small Business $0.3 billion,
which was partially offset by a $0.1 billion decline in average total deposits
in Mortgage Banking.
The company continued its focus on customer service and delivery channel
optimization. From the year-ago quarter, six banking offices were opened while
three were closed. The number of Retail Banking demand deposit account (DDA)
households increased 2% from the end of the year-ago quarter. Progress was
made in improving the Retail Banking 90-day cross sell ratio, from 2.0 products
or services to 2.3, a 15% improvement. Further, the online banking penetration
of retail households with on-line banking increased to 36% from 29% a year
earlier, with a 31% increase in the number of online customers.
The 43 basis points, or an effective 9%, decline in the net interest
margin to 4.10% from 4.53% reflected a combination of factors. This included a
shift in the loan portfolio mix to lower-margin, but higher credit quality,
consumer residential real estate-related loans. In addition, interest rates
offered on deposits have been near historical lows throughout this period, and
despite rising recently, they remain below levels of a year ago such that it
remained difficult to make commensurate reductions in deposit rates compared
with reductions in loan yields compared with a year earlier.
The provision for credit losses for the third quarter of 2004 was $5.1
million or $27.5 million less than in the year-ago quarter. This decline
reflected the overall improvement in credit quality including lower NPAs, as
well as the shift to lower-rate, lower-risk residential mortgages and home
equity loans and lines. Net charge-offs were $7.2 million, or an annualized
0.18% of average loans and leases, down from $19.8 million, or an annualized
0.59%, in the year-ago quarter (see Credit Risk for additional discussion
regarding charge-offs and allowance for loan loss reserve methodologies).
Non-interest income decreased $20.5 million, or 21%, from the year-ago
quarter, primarily due to the $21.3 million lower mortgage banking income,
partially offset by higher deposit service charges and equipment operating
lease income. Mortgage banking income decreased $21.3 million, or 71%, from
the year-ago quarter largely reflecting a change in reporting methodology. In
2004, MSR impairment and recovery is reflected in the Treasury/Other segment,
whereas in the year-ago quarter a $17.8 million recovery of previously recorded
MSR temporary impairment was recognized in Regional Banking. The remainder of
the decline in mortgage banking income is attributable to lower production and
lower gain on loan sales. The
increase in equipment operating lease income reflected growth in operating
leases, a relatively new business line. Deposit service charges increased $1.8
million, or 4%, reflecting an increase in demand deposit accounts and
53
higher
personal NSF and overdraft fees. The $1.4 million, or 11%, decline in other
income reflected lower fee sharing revenue from internal partners.
Non-interest expense increased $3.0 million, or 2%, from the year-ago
quarter, reflecting a $5.9 million, or 10%, increase in personnel costs due to
higher salaries and benefit expenses, and to a lesser degree an increase in the
number of employees. The $3.4 million, or 4%, decrease in other expenses
reflected lower marketing, telecommunications, outside services, and
transportation expenses, partially offset by higher occupancy.
2004 Third Quarter versus 2004 Second Quarter
Regional Banking earnings in the 2004 third quarter decreased $1.7
million, or 3%, from the 2004 second quarter. This reflected a $9.0 million
increase in the provision or credit losses, an $8.1 million increase in
net-interest income, and a $3.6 million decline in non-interest expense,
partially offset by a $5.2 million decline in non-interest income. The ROA
and ROE in the 2004 third quarter were 1.39% and 22.4%, respectively, down from
1.52% and 23.9% in the 2004 second quarter.
Net interest income increased $8.1 million, or 5%, from the prior quarter,
reflecting 6% growth in average total loans and 2% in average total deposits,
partially offset by a decline in the net interest margin to 4.10% from 4.15%.
Average total loans increased $0.8 billion, or 6%. Consumer loans
increased $0.7 billion, or 11%, reflecting strong growth in residential
mortgages and home equity loans and lines of credit. Excluding the impact of
the $282 million of C&I loans reclassified as CRE loans on June 30, 2004,
average C&I loans increased at a 15% annualized rate during the quarter, with
average CRE loans decreasing at a 5% annualized rate. Total average deposits
increased $0.4 billion, or 2%, reflecting growth in interest bearing and
non-interest bearing demand deposits, up 3% and 2%, respectively, and a 3%
increase in domestic time deposits.
From the end of the 2004 second quarter, the number of DDA households
increased an annualized 6%, and the 90-day cross sell ratio increased to 2.34
products from 2.17 products. On-line banking penetration of retail households
increased to 36%, and the number of active online users increased 7%.
The $9.0 million increase in provision for credit losses from the second
quarter was primarily due to a $9.7 million recovery on a single C&I credit in
the second quarter. Net charge offs were $7.2 million, or an annualized 0.18%
of average loans and leases in the current quarter. This was up from $1.8
million, or 0.05%, in the second quarter, as the second quarter net charge-offs
were reduced by the $9.7 million C&I recovery.
Non-interest expense declined $3.6 million, or 2%, from the second quarter
of 2004
.
This reflected a $7.9 million decline in other expense as the second
quarter included $5.8 million of costs related to investments in partnerships
generating tax benefits for the first half of 2004. Personnel costs increased
$4.1 million impacted by severance costs related to the 2% decline in full-time
equivalent employees and lower deferred salary costs associated with lower loan
production.
2004 First Nine Months versus 2003 First Nine Months
Regional banking contributed $167.9 million of the companys net operating
earnings in the first nine months of 2004, up $52.7 million from the comparable
year-ago period. This increase reflected the benefits of a $93.4 million
reduction in provision for credit losses, and an $11.5 million increase in net
interest income, partially offset by a $14.5 million increase in non-interest
expense and a $9.4 million decline in non-interest income. The ROA and ROE
for first nine months of 2004 were 1.40% and 21.9%, respectively, up from 1.06%
and 15.2%, respectively, in the year-ago period.
Net interest income in the first nine months of 2004 increased $11.5
million, or 3%, reflecting a 14% increase in average total loans and leases and
a 5% increase in average total deposits, partially offset by a 32 basis point
decline in net interest margin to 4.16% from 4.48%.
Average total loans increased $1.8 billion, or 14%, primarily reflecting a
$1.3 billion, or 83%, increase in average residential mortgages, a $0.5
billion, or 15%, increase in home equity loans and lines of credit, as well as
a $0.4 billion, or 12%, increase in average CRE loans. Total average C&I loans
declined $0.3 million, or 7%, from the year-ago nine-month period. The growth
in home equity, residential mortgages, and CRE loans, as well as the decline in
C&I loans reflected the
same factors noted above in the year-ago quarter comparison. Small
Business C&I and CRE loans (included in total average C&I and CRE loans)
increased $0.2 billion, or 11%, due to specific strategies that focus on this
business segment.
54
Average total deposits increased $0.7 billion, or 5%. This reflected
strong growth in average interest bearing demand deposits, up $0.9 billion, or
17%, partially offset by a $0.4 billion, or 10%, decline in domestic time
deposits. Of the $0.7 billion increase in average total deposits, Corporate
Banking accounted for $0.6 billion and Small Business $0.3 billion, with this
benefit partially offset by a $0.2 billion decline in average total Retail
Banking deposits.
The 32 basis points, or an effective 7%, decline in the net interest
margin to 4.16% from 4.48% reflected the same factors discussed above in the
2004 third quarter versus 2003 third quarter performance.
Provision for credit losses for the first nine months of 2004 was $3.2
million, down $93.4 million from the year-ago period reflecting the overall
improvement in credit quality, as well as the shift to lower risk residential
mortgages and home equity loans and lines. Net charge-offs for the first nine
months were $20.6 million, or an annualized 0.19% of average loans and leases,
down from $71.7 million, or 0.73%, in the comparable year-ago period. The first
nine months of 2004 net charge-offs were reduced by a $9.7 million C&I recovery
in the second quarter on a single credit that had been charged-off in the
fourth quarter of 2002 (see Credit Risk for additional discussion regarding
charge-offs and allowance for loan loss reserve methodologies).
Non-interest income for the first nine months of 2004 decreased $9.4
million, or 4%, from the comparable year-ago period, reflecting a combination
of factors including declines in mortgage banking revenue and other income,
partially offset by increases in service charges on deposit accounts, and
higher other income.
Non-interest expense for the first nine months of 2004 increased $14.5
million, or 3%, from the year-ago period. This reflected an $11.6 million, or
6%, increase in personnel expenses for the same reasons noted above in the
prior year quarter comparison. The $2.0 million, or 1%, increase in other
expenses reflected higher occupancy, depreciation, and charge card processing
expenses.
55
Table 18 - Regional Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2004
|
|
2003
|
|
3Q04 vs. 3Q03
|
|
2004
|
|
2003
|
|
2004 vs. 2003
|
|
|
Third
|
|
Second
|
|
Third
|
|
Amount
|
|
%
|
|
9 Months
|
|
9 Months
|
|
Amount
|
|
%
|
INCOME STATEMENT
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
163,147
|
|
|
$
|
155,083
|
|
|
$
|
160,973
|
|
|
$
|
2,174
|
|
|
|
1.4
|
%
|
|
$
|
469,292
|
|
|
$
|
457,805
|
|
|
$
|
11,487
|
|
|
|
2.5
|
%
|
Provision for credit losses
|
|
|
5,086
|
|
|
|
(3,949
|
)
|
|
|
32,537
|
|
|
|
(27,451
|
)
|
|
|
-84.4
|
%
|
|
|
3,242
|
|
|
|
96,615
|
|
|
|
(93,373
|
)
|
|
|
-96.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Credit Losses
|
|
|
158,061
|
|
|
|
159,032
|
|
|
|
128,436
|
|
|
|
29,625
|
|
|
|
23.1
|
%
|
|
|
466,050
|
|
|
|
361,190
|
|
|
|
104,860
|
|
|
|
29.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
|
|
584
|
|
|
|
327
|
|
|
|
|
|
|
|
584
|
|
|
NM
|
|
|
960
|
|
|
|
|
|
|
|
960
|
|
|
NM
|
Service charges on deposit accounts
|
|
|
42,923
|
|
|
|
42,357
|
|
|
|
41,151
|
|
|
|
1,772
|
|
|
|
4.3
|
%
|
|
|
125,983
|
|
|
|
119,522
|
|
|
|
6,461
|
|
|
|
5.4
|
%
|
Brokerage and insurance income
|
|
|
3,615
|
|
|
|
4,515
|
|
|
|
4,199
|
|
|
|
(584
|
)
|
|
|
-13.9
|
%
|
|
|
11,986
|
|
|
|
12,042
|
|
|
|
(56
|
)
|
|
|
-0.5
|
%
|
Trust services
|
|
|
263
|
|
|
|
225
|
|
|
|
200
|
|
|
|
63
|
|
|
|
31.5
|
%
|
|
|
780
|
|
|
|
748
|
|
|
|
32
|
|
|
|
4.3
|
%
|
Mortgage banking
|
|
|
8,588
|
|
|
|
13,227
|
|
|
|
29,880
|
|
|
|
(21,292
|
)
|
|
|
-71.3
|
%
|
|
|
27,848
|
|
|
|
47,821
|
|
|
|
(19,973
|
)
|
|
|
-41.8
|
%
|
Other service charges and fees
|
|
|
10,685
|
|
|
|
10,529
|
|
|
|
10,401
|
|
|
|
284
|
|
|
|
2.7
|
%
|
|
|
30,627
|
|
|
|
31,900
|
|
|
|
(1,273
|
)
|
|
|
-4.0
|
%
|
Other
|
|
|
10,584
|
|
|
|
11,295
|
|
|
|
11,941
|
|
|
|
(1,357
|
)
|
|
|
-11.4
|
%
|
|
|
33,584
|
|
|
|
29,128
|
|
|
|
4,456
|
|
|
|
15.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income Before Securities Gains
|
|
|
77,242
|
|
|
|
82,475
|
|
|
|
97,772
|
|
|
|
(20,530
|
)
|
|
|
-21.0
|
%
|
|
|
231,768
|
|
|
|
241,161
|
|
|
|
(9,393
|
)
|
|
|
-3.9
|
%
|
Securities gains
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
NM
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
77,256
|
|
|
|
82,475
|
|
|
|
97,772
|
|
|
|
(20,516
|
)
|
|
|
-21.0
|
%
|
|
|
231,782
|
|
|
|
241,161
|
|
|
|
(9,379
|
)
|
|
|
-3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
|
492
|
|
|
|
275
|
|
|
|
|
|
|
|
492
|
|
|
NM
|
|
|
811
|
|
|
|
|
|
|
|
811
|
|
|
NM
|
Personnel costs
|
|
|
65,859
|
|
|
|
61,728
|
|
|
|
59,917
|
|
|
|
5,942
|
|
|
|
9.9
|
%
|
|
|
190,743
|
|
|
|
179,110
|
|
|
|
11,633
|
|
|
|
6.5
|
%
|
Other
|
|
|
78,072
|
|
|
|
85,997
|
|
|
|
81,505
|
|
|
|
(3,433
|
)
|
|
|
-4.2
|
%
|
|
|
247,961
|
|
|
|
245,935
|
|
|
|
2,026
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|